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interaction, income tax & VAT flat rate scheme

interaction, income tax & VAT flat rate scheme

Hello all

New client. Self employed for several years. Year end 31st March. VAT registered. VAT Return dates also end 31st March. All services standard rated at 20%. All fees received promptly. No bad debts or delayed settlement.

He pays all his expenses immediately without delay. He has minimal expenses, his income is well below the £150,000 turnover and he is in the VAT flat rate scheme.

Until now he has prepared his own SA returns but is too busy so wants us to do the job for him. He wants us to continue to use the same simple basis as he has used in the past, that is, his self employment pages are to be prepared on the "receipts and payments" basis, i.e. "money in less money out". [to quote him].

He has always filed the full SEF pages and completed them as follows - Business Income = total gross invoices issued including 20% VAT he has charged, Business Expenses = all listed gross including VAT.

Under "Other business expenses" he has claimed the 4 quarterly VAT flat rate payments he has made to HMRC in the tax year.

He view is that he has received all his fees including VAT in his hands, he has paid out all expenses including VAT and he has paid HMCE those 4 quarterly VAT payments so they are also a business "expense".

His view is that, by following this simple approach, he is paying income tax on the net result of his "money in less money out" philosophy.

Anyone see anything wrong with continuing this straightforward approach?

Thank you for any thoughts and may I wish you all a very prosperous 2013.


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31st Dec 2012 09:16

Do the calcs

His view is that, by following this simple approach, he is paying income tax on the net result of his "money in less money out" philosophy.

If there are no debtors or creditors at all (but he MUST have a VAT creditor surely), and no accruals or prepayments, then it may be ok. Standard procedure is to deduct flat rate VAT from income, but the end result will be the same if deducted as an overhead,

Your client is being selective, ie. claims money in/out is profits, but is obviously including a VAT payment that hasn't occurred in the financial year. What other 'selections' is he choosing?

You are the accountant, not your client. If the above does not apply then you have to choose whether to educate the client and do the tax correctly, or whether to just do as they ask, even though you know it is wrong. 

Thanks (1)
By taxinfo
31st Dec 2012 11:16

Thanks for your thoughts, Shirley.

Yes, I agree we need to have a deeper "chat" about various issues with the new client, much as you suggest, but I think he is genuine.

He is a very well respected well known local professional who is far from ignorant of his tax obligations.

As to the VAT accrual, and the matter of his final flat rate payment in March each year, he is so efficient, up to date and immediate with his payments he told us he files that VAT Return ON 31st March thus ensuring that all his 4 VAT payments in his Tax Return are IN the year in question.

Like I say, we will need to talk more with him. 


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31st Dec 2012 15:47

Happy New Year

Hi all - hope you had a good christmas.

Whilst we could debate the accurateness of his approach the coming changes will follow that principle I think so for consistency I would continue as is.

I always show turnover including VAT, as the guidance notes say you can, with the VAT paiyments as an expense. We have discussed this before but I can't see the thread and many of us complete the forms in both ways. As we get the same answer at the end and I find this way easier to demonstrate to my clients I am glad we get to choose! 


Thanks (1)
By taxinfo
31st Dec 2012 16:24

Hi Marion

I think our client has the new changes in mind too. He approves of the "cash basis", "money in less money out" idea, hence he wants to maintain the status quo.


HNY to you too.

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