Flat Rate VAT Benefit - UK Corporation Tax

Flat Rate VAT Benefit - UK Corporation Tax

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A company which is on a flat rate VAT scheme makes an accounting loss and they have a flat rate VAT benefit:

  • Firstly, does the company show this as; (my assumption is "a")
  1. other trading/operating income, OR
  2. other non-trading/non-operating income
  • Is this other income liable to UK corporation taxes even if the company has made a loss?

Replies (16)

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By Paul Crowley
17th Mar 2021 17:12

Taxable
Where? I put all received money to income and VAT paid against income.

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Replying to Paul Crowley:
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By billy009
17th Mar 2021 22:23

I assume the difference of VAT in a flat rate scheme needs to be shown as other income (not included in turnover) as client charges customer 20% and (lets assume) they only pay 12% to HMRC. This extra 8% needs to be recorded as other income, per my understanding.

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Replying to billy009:
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By Paul Crowley
18th Mar 2021 00:26

Well done for swimming against the tide
All responders reply the same
You seem to disagree with all responders

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By doubletrouble
17th Mar 2021 17:45

Turnover is including VAT charged minus VAT paid

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Replying to doubletrouble:
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By billy009
17th Mar 2021 22:25

I believe turnover is always exclusive of VAT for accounting purposes

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Replying to billy009:
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By SXGuy
18th Mar 2021 06:32

Which if you re read the point. It would be.

Flat rate scheme means there's a difference between what is charged and what is paid. That difference is taxable and therefore included in turnover. So the point was valid and correct.

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By BudgetB
17th Mar 2021 18:27

Taxable operating income

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Replying to BudgetB:
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By billy009
17th Mar 2021 22:24

So is it still taxable if the company makes an accounting loss?

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By Paul Crowley
17th Mar 2021 19:02

This system has outlived the issues it was trying to address
VAT too difficult, make it easy?
Not once come across a client that failed to make a profit out of this.

This is probably the entire VAT gap that could reasonably be expected to be closed

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Replying to Paul Crowley:
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By billy009
17th Mar 2021 22:28

The scheme was good up to atleast 2-3 years back when it had lower FRS percentage. This is the 1st time i've come across a client who has an accounting loss so I was a bit confused.

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By Roland195
17th Mar 2021 19:20

Never ceased to be entertained by the so called book keeping simplification (not that anyone ever used it as such) causing such distress to accountants trying to reconcile it with accounting standards.

Even with the weird and wonderful ways that they come up with to recognise the gain (never a loss or they wouldn't use it), they all seem to decide its not then taxable. The scheme is (or was anyway) generous enough - do you want the moon on a stick too?

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Replying to Roland195:
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By billy009
17th Mar 2021 22:30

Totally agree with you. I have decided to charge tax on it better to stay safe then end up paying penalties etc later on

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Replying to billy009:
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By Paul Crowley
18th Mar 2021 00:24

IT IS TAXABLE
you are not 'playing safe'
To pretend it is not income from the trade is evasion

How could it not be taxable?
And what the heck has a loss to do with it?

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By SXGuy
18th Mar 2021 06:34

I think your confused. Your asking whether the difference between flat rate paid vat and vat charged is taxable based on their being a loss.

You have it all backwards.

You should have already added the difference between vat charged and vat paid to the turnover before calculating any losses.

So your question is not even a valid one since it makes no sense what so ever.

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VAT
By Jason Croke
18th Mar 2021 09:17

Flat rate VAT is applied to sales/turnover.

Profit/Loss doesn't come into it. If you sell something for £100 under flat rate then you apply the flat rate % to the £100 and declare as output tax.....even if it cost you £200 to buy the goods you are selling for £100.

You might be confusing flat rate scheme with 2nd hand margin scheme, whereby if you buy something for £200 and sell it for £100, then there is no output tax as no margin. You cannot use both flat rate scheme and 2nd hand margin scheme together.

What do you mean by "flat rate benefit"? Do you mean the extra income that comes from charging 20% to customer but only paying over say 14.5% to HMRC?

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By fawltybasil2575
18th Mar 2021 11:18

@ billy009 (OP).

[1] From your later posts, I understand that your expression “flat rate VAT benefit” means the “profit” which you have made from operating the FRS (ie instead of operating “normal” VAT).

[2] The correct accounting treatment is for the “sales” figure in the Financial Statements to be:-

(i) The VAT-inclusive sales figure.
Less (ii) The VAT PAYABLE under the FRS.

The resultant figure therefore (IMPORTANTLY) differs from your understanding (your post at 22.25 on 17/3/21) that the figure in the Financial Statements should simply be the invoiced net sales figure (assuming your company issues invoices)

[3] I surmise that you consider the “profit” (the “flat rate VAT benefit” in your terms) from operating FRS, to be effectively the DIFFERENCE between the correct sales figure [as explained at the start of paragraph [2] above] over the net invoice figure [as explained at the end of paragraph [2]].

[4] In reality, the true “profit” made from operating FRS is NOT simply the “DIFFERENCE” [per [3] above]. Importantly, the Expenses figures in the Profit and Loss Account [and the Additions to Fixed Assets on the Balance Sheet, if any (unless the £2,000 rule is taken advantage of)] will almost certainly include Input Tax – hence the overall “profit” is the (above-explained) “DIFFERENCE” LESS the “unclaimed” Input Tax.

[5] Hopefully you will see [from [1] to [4] above] that the true “profit” per [4] is NOT a SEPARATE item in the Financial Statements, but is SUBSUMED within the Income and Expense items – consequently, there is no “offset” decision to be made. The FRS “profit” is AUTOMATICALLY taken account of in determining the trading loss.

Basil.

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