Joining FRS

Client wants to join FRS. Expected t/o in the next 12 months c. £1m.

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Client's business (construction, labour only with very little materials) crossed the threshold in Jan 17 and registered for VAT from Mar 17.

Now the client has been approached by another accountant saying that he would be better off on FRS and would pay only 8.5% VAT over to HMRC.

In reality the client would be on 13.5% and then 14.5% Labour only rate if joined FRS. I have done the calculations and there is no benefit of FRS or it is very minor.

Question: can a client join FRS if at the moment of joining his t/o is below £150k but can reasonably expect to have a t/o of c. £1m in the next 12 months? Am I missing the trick somewhere?

 

 

Replies (12)

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By firecodeblue
04th Aug 2017 13:36

FRS was introduced as an admin saver but has been used by many as a tax reducer. Make sure that you are applying the flat rate to the inclusive turnover and include ALL taxable supplies, not just standard rate supplies.

The regulations state that you can join the scheme if "there are reasonable grounds for believing that...the value of taxable supplies...will not exceed £150,000".

If you believe that turnover is going to be much higher than this, then the business is not eligible to join.

Thanks (1)
RLI
By lionofludesch
04th Aug 2017 13:40

In theory, yes. That £1m contract might never happen. If it's been signed, of course, that's another matter.

Whether it's a good idea is a different kettle of fish. From what you say, in an admittedly vague way, a rate of 8½% is optimistic. If the goods are really low, the client could get stuck with 16½%. If the £1m contract does materialise, the flat rate advantage will be shortlived anyway.

If the client goes for the 8½% rate, you might need to consider whether to submit an SAR.

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By free-rider
04th Aug 2017 13:51

The client would avoid the Limited cost trader rate.

The business has steady t/o of c. £70k per month before VAT and have very reasonable grounds to expect annual t/o of at least 1m.

I am really cautious to apply for FRS in such circumstances.

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Replying to free-rider:
By Duggimon
04th Aug 2017 13:57

You could always write a letter to HMRC to ask. In the time it took them to respond the business would have breached the threshold and there'd no longer be a problem.

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RLI
By lionofludesch
04th Aug 2017 13:59

Well, if the turnover is £70k a month, it'll be way over the threshold by the time the first return is submitted.

It's a non-starter.

Never heard such nonsense.*

*Actually, I have. On many occasions.

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By free-rider
04th Aug 2017 14:10

This nonsense was the main point of the sales pitch from another accountant.

Will advise client accordingly and take it from there. Thank you everyone who responded.

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Replying to free-rider:
RLI
By lionofludesch
04th Aug 2017 14:27

Ask the client how he's going to show his turnover is below £150,000 with £200,000+ on his first return.

It may get him thinking.

In fairness to the pitching accountant, is he aware of the numbers ?

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Replying to lionofludesch:
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By free-rider
04th Aug 2017 23:47

lionofludesch wrote:

It may get him thinking.

In fairness to the pitching accountant, is he aware of the numbers ?

In fairness to the pitching accountant she knows the numbers and also claims that we have prepared accounts for the last year incorrectly (below is explanation why).

Initially the client was paid net of CIS deductions, i.e. they earned let's say £100 but contractor paid the Co only £80 and trf £20 of CIS Tax to HMRC.

Offcourse in this example the turnover for accounts is £100 and that was the basis for preparing accounts, but pitching accountant insists that turnover should be only £80 as this is the only amount received in the bank!
The £20 which will be repaid to Co by HMRC is tax free income as this is just a repayment of tax.

Would never believe this coming out from accountant's mouth if would not hear it with my own ears. And these people have 2 offices on a high street! We are doomed.

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Replying to free-rider:
RLI
By lionofludesch
05th Aug 2017 08:35

Interesting. Maybe something in which the NCA might be interested, too.

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Replying to lionofludesch:
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By free-rider
06th Aug 2017 17:17

lionofludesch wrote:

Interesting. Maybe something in which the NCA might be interested, too.

I don't have much hope for NCA - I have filed few reports in the last few years and think all felt on deaf ears.

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Red Leader
By Red Leader
04th Aug 2017 15:06

I'm curious how the turnover goes from £150k to £1m for a labour-only contractor.

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Replying to Red Leader:
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By free-rider
04th Aug 2017 23:39

2 Red Leader.

The Co only started to trade late last year and hit the VAT threshold in Jan 17. They are now paying c. 30 subbies every month (c. £70k in sales per month) and growing so the turnover will be around £1m in the next 12 months for sure.

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