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Potential new client on flat rate VAT scheme

Potential new client on flat rate VAT scheme

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I have a potential new client who wants me to do his SA tax return going forward. He is a delivery driver and his previous accountant registered him for the flat rate VAT scheme but I am unsure why. The client is unsure why too! His job was purely driving -  he received an income for this and had no expenses to put through. The previous accountant appeared to complete VAT returns for him. Excuse my ignorance if this is standard practice but it seems a bit dodgy to me. Anyone have any helpful views to enlighten me? Many thanks.

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12th Jun 2019 17:21

IF he's genuinely self employed and IF he needs to be VAT registered and IF he really doesn't have any expenses then the FRS would be good advice.

Having said that there are a lot of IFs in my comments. You really need to clarify what part of the arrangement you feel is 'a bit dodgy' for anyone to comment.

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By Lkc77
to Wanderer
12th Jun 2019 17:41

Fair enough. No he doesn't need to be VAT registered by a long way and no expenses expected.

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to Lkc77
12th Jun 2019 18:17

You haven't addressed my first IF which is really the main one that needs considering.

You also haven't answered my question.

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By SXGuy
12th Jun 2019 17:27

Assuming his income exceeded the vat threshold, given he has no vat to reclaim on expenses then it would make sense to register a frs. If however income isn't, then no idea

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By pauld
12th Jun 2019 17:50

It used to be beneficial to be on the FRS as you could make a bit of money out of it if you had a low FRS percentage and no expenses. However nowadays if the rate to apply is 16.5% each quarter, then its a complete waste of time.

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12th Jun 2019 18:22

What about petrol/ diesel?

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By stig247
12th Jun 2019 20:13

Courier drivers can use 10% flat rate.

So will be benefical to be registered for vat

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to stig247
12th Jun 2019 20:39

Limited cost trader rules?

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to Wanderer
13th Jun 2019 09:16

Fuel and other motor expenses are a relevant goods to a courier.

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to Duggimon
13th Jun 2019 09:19

But the OP has confirmed that no expenses are incurred.

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to Wanderer
13th Jun 2019 09:29

Quite right, I addressed that below but I should have made my two posts together.

I don't see how a courier can be self employed with no expenses. If he's driving someone else's car with someone else's fuel then there's not much left to indicate he's anything but an employee.

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to Duggimon
13th Jun 2019 09:43

Hence my first (& most important) IF.

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12th Jun 2019 20:25

@ Lkc77 (OP).

My fear is that the previous accountant may have not learned of the change in legislation, with effect from 1 April 2017, under which “limited cost traders” must use an FRS rate of 16.5% (prior to that date it was indeed possible to make very substantial “VAT savings” from using the relevant low FRS rate, especially where VAT-inclusive expenses were very low).

I am taking at face value your statement that the prospective client had “no expenses” (which, taken literally, implies that the accountant operated on a pro bono basis): if such “no expenses” statement is not strictly correct (if, for example, in one or more VAT periods there have been “qualifying goods” which have enabled the 16.5% limited costs trader rate to be replaced by the rate used prior to 1 April 2017) then it is conceivable that the FRS just might (albeit unlikely) have been advantageous overall.

For completeness I should mention that the normal 1% “discount” would have been available as a deduction from that 16.5% figure, if any part of the first 12 months of registration fell on or after 1 April 2017.

Your statement that the prospective new client was unaware that the accountant applied for the FRS without his knowledge is disturbing, since the accountant should have discussed such matter with the prospective client before making that application (and then only upon receiving agreement thereto). In identical vein, of course, if relevant the accountant should not have arranged the VAT registration itself without its being sanctioned.

I am slightly confused by your statement that “The previous accountant APPEARED (my emphasis) to complete VAT returns for him“, which seems to imply a degree of uncertainty generally, and perhaps therefore there has been some misunderstanding. If not, then the prospective new client should be writing to the accountant to ascertain their reason(s) for the FRS being used from 1 April 2017.

In addition, of course, the prospective new client should look into the FRS rate used on VAT returns from 1 April 2017 onwards, by obtaining full details of those returns from the accountant or if necessary direct from HMRC (frankly, since the figures should be very straightforward, it should be possible to see whether, in principle, an incorrect FRS rate has been used, simply by looking at the relevant VAT-inclusive figures on the last VAT Return submitted, and comparing those figures with the VAT paid re that period).

If my initial “fear” is substantiated, then:-

(i) It is almost certain that a VAT deregistration is now advisable (assuming of course that the taxable turnover has not increased substantially, since you state that thus far it has been well below the threshold), and

(ii) The appropriate action should be taken in notifying the VAT office re the under-declarations to date.

If the accountant is found negligible, then of course compensation from him should be pursued for any Penalties.

Basil.

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13th Jun 2019 09:17

How on earth can a self employed driver have no expenses? If the vehicle isn't his then it seems unlikely he's self employed.

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13th Jun 2019 09:38

A driver with no expenses? Does he have an electric car?

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13th Jun 2019 09:39

Here comes the silence...

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13th Jun 2019 10:17

With respect of course to recent posters, it is a perfectly acceptable (and in many cases, the most sensible and practical) arrangement for the customer of that self-employed person (normally the owner of the vehicle) to purchase the fuel for that vehicle.

Of course, one must always ensure that the arrangement is valid in terms of the status of the driver, ie that his status is not that of employment.

I have clients on “both sides” of the arrangement, ie haulage contractors who engage the services of self-employed drivers, and self-employed drivers (who are remunerated on the basis of either hours incurred or a “price per journey”) and in all those cases the only practical arrangement is that the “customer/vehicle owner pays for fuel”.

Basil.

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By Lkc77
13th Jun 2019 20:41

Thank you so much to everyone who has taken the trouble to post replies. I've got to admit any uncertainty I have alluded to is based upon the potential client not having English as a first language and feeling rather pushed into the scheme without understanding the details. The question of self employment vs employee is one I have not yet arrived at a conclusion and I'm awaiting more answers to make this decision. However his work has involved various delivery driver roles one of which is a very well known online supplier who insists that staff are self employed. I believe whilst on the face of it these workers appear as employees (only work for 1 company), since they are allowed to claim fuel they can be determined as self employed. I'll continue to ask questions and would like to contact the previous accountants to obtain documents actually submitted to HMRC to get more clarification. Thanks again all.

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