What does 10% mean ?

VAT FRS

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If a subcontractor has material costs of more than 10% of turnover, his flat rate percentage drops from 14½% to 9½%.

The question is what does 10% mean ?   Do the material costs include VAT ?   And does the turnover include VAT ?

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By cbp99
24th Aug 2018 18:28

Regulation 55K refers to “less than 10% of relevant turnover from [building or construction services]”; relevant turnover is defined in reg 55G, which refers to the HMRC Notice (733), which says “flat rate turnover is all the supplies your business makes, including Vat” (calculated according to whether the basic, cash based or retailer’s method is used).

So the answer would seem to include materials and Vat, but not any turnover from an ancillary business, rents etc.

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By lionofludesch
24th Aug 2018 18:33

OK - that's the denominator sorted. And it favours a client working on newbuild - which is good.

What about the numerator ? One assumes the same basis but do we have some authority for that assumption ?

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Replying to lionofludesch:
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By cbp99
24th Aug 2018 18:46

Good point - 55k refers to "the value of materials supplied" being "less than 10% of relevant turnover", which would suggest ignoring the Vat.

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By lionofludesch
24th Aug 2018 19:10

So we include it for turnover but not for materials ?

There's a bit of a disconnect there .......

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By Portia Nina Levin
28th Aug 2018 15:15

Why? What is the value of the materials supplied? Since a flat-rate trader cannot recover their input VAT, the value of the materials must surely be the VAT-inclusive amount?

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By Mrbailey
26th Aug 2018 10:26

At school my maths teacher said 10 per cent was one tenth. Ten per cent of 100 is 100 ÷ 1/10 = 10.

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By lionofludesch
26th Aug 2018 10:49

Mrbailey wrote:

At school my maths teacher said 10 per cent was one tenth. Ten per cent of 100 is 100 ÷ 1/10 = 10.

A tenth of what ?

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By lionofludesch
26th Aug 2018 10:49

Mrbailey wrote:

At school my maths teacher said 10 per cent was one tenth. Ten per cent of 100 is 100 ÷ 1/10 = 10.

A tenth of what ?

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By DKB-Sheffield
26th Aug 2018 16:58

As above... the question was not what 10% is... it was what HMRC deem to be the "10" that "1" is being divided by.

Besides... your equation of 100 divided by 1/10 would result in a value of 1,000 - surely?

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By Tax Dragon
26th Aug 2018 16:56

I assume we're looking at the same unclear words and there's no reason why my guess as to what they mean should be any better than yours. But for what it's worth, here's my guess.

Rather than the mismatch to which you refer, does it make more sense to think in terms of fees charged? If 10% of the total is for the supply of goods, you're in. If over 90% is for your labour, you're not. Doesn't then matter whether you measure net or gross.

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By lionofludesch
26th Aug 2018 17:06

Sure - but then the subbie can charge £85 for labour and £15 for materials, despite the materials only having cost him £5.

I can't see HMRC being overly happy with that.

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By Tax Dragon
26th Aug 2018 18:08

Nice to see the old "that'll be 50p for the goods and £10.49 for the paper bag sir" trick revitalised.

These days without the "sir", I imagine.

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By Tax Dragon
26th Aug 2018 18:13

Does the purposive interpretation apply to secondary legislation?

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By emanresu
28th Aug 2018 15:04

Given the "like-for-like" VAT principle, isn't it then either Yes, Yes or No, No?

And by how much would the above two outcome ratios differ?

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By Portia Nina Levin
28th Aug 2018 15:13

Why would you exclude the VAT on the materials for a flat-rate trader, who cannot recover the VAT on their inputs?

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