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Which flat rate percentage to use for gym?

Which is the most appropriate flat rate percentage to use for a company running a small gym?

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I have a limited company client who runs a gym for small groups and also offers 1-1 personal training The company has been vat registered for a year but future turnover should be under £150k so the client wants to join the flat rate scheme. My problem is that the business doesn't seem to be covered by any of the sectors listed by HMRC. Does anyone else have similar clients & if so what is the appropriate rate?

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By frankfx
30th Sep 2020 13:27

Limited cost trader may be your starting point?

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By pennyloe
30th Sep 2020 13:42

Not sure, as he has bought lots of cleaning products, small equipment, accessories for making online videos, t-shirts that he sells to clients etc. Purchases are just over the 2% mark

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By frankfx
30th Sep 2020 16:36

pennyloe wrote:

Not sure, as he has bought lots of cleaning products, small equipment, accessories for making online videos, t-shirts that he sells to clients etc. Purchases are just over the 2% mark

Have you studied the the Excluded costs list?
Some items above are caught ! Not relevant.
Purchases must meet the criteria.

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RLI
By lionofludesch
30th Sep 2020 23:34

I had a corporate client who ran a gym. They were on 8.5%. They bought a lot of gas and electricity which alone easily took them out of limited cost trader territory.

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By fawltybasil2575
01st Oct 2020 11:00

@ pennyloe (OP).

On the assumption that the client is not "caught" by the "limited costs trader" rules (care is essential in relation thereto, as advised by eminent members above) then I fully endorse Lion's view that the 8.5% Flat Rate is applicable (that of course being the rate for "Sport or recreation").

In intending no offence (re your not readily identifying the correct trade sector) I would have regarded operating a gym as comfortably within the "recreation" part of "Sport or recreation". Hotels, for example. would often include, in their advertising material, comments such as "Recreational activities include the provision of a swimming pool and gymnasium".

One has to ask whether the decision to consider operating the FRS should indeed have been made at the very start, on the assumption that (as would appear likely) the expected turnover at the start of trading will have been within the £150,000 projection limit. As you will be aware, if the FRS had been operated in the opening 12 months of registration, then the FRS rate would have been reduced by a discount of 1%, from 8.5% to 7.5%.

At the risk of labouring the point, the "limited costs trader" point is crucial, given the disparity between 16.5% and 8.5%; hence if the taxable turnover is (say) £125,000, then the differential is a very substantial £10,000.

Basil.

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Replying to fawltybasil2575:
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By pennyloe
01st Oct 2020 11:51

Thanks for your reply. I have recently taken over as accountant for this client and was therefore not part of the original decision when vat registration commenced. I think the limited cost trader rules are borderline - over the past year, given the covid situation, my client has had to purchase endless amounts of cleaning materials and items (not capital) to help with on-line videos. What I don't know however is whether this level of purchasing will be sustained going forward. Do I have to calculate on the quarterly basis whether he is a low cost trader or can it be considered on an annual basis?

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By fawltybasil2575
01st Oct 2020 12:26

@ pennyloe (OP).

Determining whether the “limited costs trader” is required to be used is a decision to be made on the basis of EACH VAT PERIOD.

In the case of your client company, there are therefore “planning opportunities” in view of your saying that the 2% threshold may not be met in the future (which appears to imply that your client company may be borderline in some future periods).

To explain, if the qualifying goods are, in 4 quarters, say 5.5%, 2.5%, 2.5% and 1.5%, then you would use 8.5% for the first three quarters and 16.5% for the fourth quarter. If, on that example (and assuming for simplicity that the turnover is at the same level each quarter) the company had also used Annual Accounting, then the 8.5% rate would be used for the full 12 months (since the qualifying goods will have been 3% for the year).

If, conversely, however, the qualifying goods had been, for the 4 quarters, 2.8%, 2.5%, 2.2% and 0.1%, then the 8.5% rate would apply to the first three quarters, and 16.5% to the fourth quarter; whereas if the Annual Accounting Scheme had been operated (again assuming constant turnover levels of course) the 16.5% rate would apply for the full 12 months (since the qualifying goods will have been 1.9% of the turnover).

I hope the above clarifies the matter.

Basil.

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By lionofludesch
01st Oct 2020 12:37

Following on from what Basil says, Annual Accounting can be useful if the business has an uneven distribution of eligible costs.

On the other hand, it can also void your claim for the entire year.

Take care !

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Replying to fawltybasil2575:
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By pennyloe
01st Oct 2020 14:18

Perfectly. Many thanks for all of your help

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