Flat rate scheme revelations by Neil Warren

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Neil Warren has been to see HMRC about issues with the flat rate scheme, along with colleague Mike Thexton. Some members will have caught his detailed study in an article in Taxation magazine dated 12 March 2009. Here, Neil provides a summary of one key issue for AccountingWEB.co.uk members.

A number of weeks ago, I wrote a feature for Accounting Web about important points to consider in relation to the flat rate scheme (FRS). There were a number of concerns raised by readers about how to deal with specific sources of income earned outside of the main trading sales of a business. In this feature, I want to alert practitioners to a potential pitfall in relation to buy to let income. I will explain with a practical...

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About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.


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23rd Mar 2009 04:39

I agree, sole trader
Neil Warren has summarised the treatment of sale of assets for us this week. It doesn't make comfortable reading.

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By Anonymous
18th Mar 2009 17:52

..in simple terms:does this mean that a sole trader using the FRS would have to ensure that title to the home property was in joint names before selling it - even allowing for proportionality or coming out of the FRS before selling?

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By Anonymous
16th Mar 2009 17:09

To be fair to Neil, he does cover this in his excellent article in Taxation magazine, but we asked him to give us a snapshot of the issue here.

One reason this is not such a disaster even for unrepresented taxpayers is that HMRC accept that under the principle of proportionality, the trader can retrospectively withdraw from the flat rate scheme to exclude the sale proceeds from the scheme. The downside of course is the retrospective return to "normal" VAT accounting - and probably consequent VAT liability. Not a good result but not quite the disaster that accounting for VAT on the proceeds would be.

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16th Mar 2009 17:05

Think Positive!
I think these apparent nonsenses can be turned to an advantage in certain circumstances. Suppose the trader was in a low flat rate category eg a pub at 6.5%. If he had a commercial investment property (not related to his business) then if he opted to tax (permission required for an existing property) then he would be well in profit by applying the flat rate scheme percentage.

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16th Mar 2009 15:31

Even more important
Yes but I believe there is an even bigger problem that has beeen missed by the author of this article.....

the eventual sale of the buy to let .....say £200,000 ......frs VAT will also be due!!!!!

Yes you can opt out before the sale and revert to the 'traditional method' but this does not help the unrepresented taxpayer who will carry on unaware of the consequences................. and lets not forget these were the people this scheme appeared to be aimed at!!!!!

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16th Mar 2009 13:32

EU vs UK Law

While agreeing with pretty much everything you said in your excellent article on FRS, I would just point out that if there is a discrepancy between EU law and UK law then the tapayer is able to rely on the UK law if it benefits them.

The fact that the UK law talks about a 'business' would still catch property letting in my opinion.

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