Share this content
6

Interaction between 5% Reduced Rated & FRS at 10%

Interaction between 5% Reduced Rated & FRS at 10%

Didn't find your answer?

Good morning all

Main Contractor is insisting (rightly) that Subcontractor Window Fitting Company invoices at 5% (Non-residential conversion).  Subcontractor wants to invoice at 20% as is on a FRS of approx 10% and would therefore lose out if was to invoice at 5%.  I know that technically the Subbie should be invoicing at RR 5% and any other amount would, statute-wise, not be Output Tax, but is there a solution to this problem, or is this just a quirk of the FRS that the Subbie should have anticipated being within the Construction Sector?  Note, there is an element on this site that is New Build, Zero Rated, so the problem will become worse for Subbie.

Additional note - I know the Contractor will have to issue a Certificate 18.1/18.2

Further Note - My interest is neither as Contractor nor Subbie.  More of an adjudicator keeping all parties happy.

Thank you all.

 

Replies (6)

Please login or register to join the discussion.

Psycho
By Wilson Philips
05th Jul 2020 11:54

It’s a well-known issue - one needs to think very carefully about using FRS if output VAT rates likely to be less than S/R. Subbie needs to suck it up.

It raises an interesting question, though - if the Chancellor decides to reduce VAT rate, should we expect a reduction in the FRS rates?

Thanks (1)
avatar
By fawltybasil2575
05th Jul 2020 12:51

@ paul_scotland_5 (OP).

Every business operating the FRS, or considering such operation, should take into consideration the expected future proportions of SR, RR, ZR and exempt outputs. The subcontractor at issue is no different in that regard, and hence there is no “quirk”.

The subcontractor has the option of withdrawing from FRS, and should of course take into account, in deciding whether to so withdraw, ALL future Outputs. The subcontractor, in so considering those future Outputs, should take a “two year” view, in view of the rule that one must wait at least 12 months before rejoining FRS, after withdrawal.

If (say) the subcontractor at issue (in your case) decides that retaining FRS is beneficial overall, but that accepting the contract will result in a “VAT loss” on that contract (arising from the VAT disparity to which you refer) of (say) £700, then the subcontractor should make a judgment call, as to whether they wish to absorb that loss, or alternatively decline the contract, in the light of all other circumstances (including its relationship with the contractor).

One assumes that the “approx. 10%” to which you refer, is the 9.5% Flat Rate applicable to those in the construction industry for whom the cost of materials is more than 10% of Outputs, and that such eligibility to that 9.5% rate will continue (the FRS rate where that cost of materials threshold is not reached jumps substantially to 14.5%).

Your “adjudication” role should in reality be simply that of providing guidance to the subcontractor, albeit you should ensure that your role does not expose you to action (by any of the parties).

Basil.
EDIT. Desperately slow typing Basil has now seen Wilson’s post. In the past, whenever VAT standard rates have been amended, there have been corresponding changes to the flat rates: it is almost inconceivable that the government would not ensure again that the SR change is reflected in revised flat rates.

Thanks (1)
avatar
By Paul Crowley
05th Jul 2020 14:08

FRS clients always looking to accept making a profit on VAT. Making a loss really is intolerable.

Thanks (4)
Replying to Paul Crowley:
RLI
By lionofludesch
06th Jul 2020 03:34

Paul Crowley wrote:

FRS clients always looking to accept making a profit on VAT. Making a loss really is intolerable.

Indeed.

Their accountants advise them badly.

Thanks (2)
avatar
By paul_scotland_5
10th Jul 2020 20:48

Thank you for the replies. Is there any opinions on the supply of Subcontractor's materials being invoiced as standard and supply of services being invoiced as reduced rated?

Thanks (0)
Replying to paul_scotland_5:
RLI
By lionofludesch
10th Jul 2020 21:03

paul_scotland_5 wrote:

Thank you for the replies. Is there any opinions on the supply of Subcontractor's materials being invoiced as standard and supply of services being invoiced as reduced rated?

Yes. If this is part of the same job, there is only one supply, at reduced rate.

You don't charge materials at 20% and labour at 5%.

Thanks (0)
Share this content

Related posts