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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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.
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.
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.
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.
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 ?