VAT Flat Rate: Not so simple simplification
As all VAT registered businesses will soon have to keep digital records under the MTD regulations, is it now time to put the VAT flat rate scheme (FRS) out to pasture?
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Zero justification for continued existence
Same could really be said for annual accounting scheme
The claimed purpose for Flat Rate was to make keeping records easy for the simple trader
Only ever used to make a buck from the taxpayer
Outlived its purpose
Totally agree
The calculating on Net was very common.
Had a couple myself. None were people trying it on, genuinely thought that HMRC liked to give away money.
Never claimed to understand the rationale behind it - before the limit cost trader rules came in, it was predominantly used by consultantcy businesses to write off substantial amounts of VAT and who likely had simple calculations anyway. Then you have the nonsense of trying to fit the business into the categories - half of the listed ones couldn't be viable with turnover low enough to qualify for the scheme.
Even worse
Almost no identifiable actual real trades for traders that were likely to want simple records
HMRC take was if you made too much VAT profit you misunderstood the category
Publican that sold food being an example
No you are a restaurant
Tend to disagree with various comments, as for some clients the FR scheme is highly relevant.
Take my catering client (please !). Has lots of zero rate purchases but it' s impossible to plough through every receipt - if not lost or illegible - to correctly record input Vat - and that's using bank feeds. But I know income is properly recorded as very little room for wrong postings. Plus a couple of others where it's use is very appropriate.
Those incorrectly using FR without professional advice deserve all they get if they end up getting penalised.
I see it used fair less that it used to be, and I cant remember the last time I seriously considered advising a client to use it.
Yes, please, let the FRS kick the bucket and at least MTD will be good for something.
It was always a politician's sound bite and an added complication more than a genuine simplification.
Notwithstanding the strength of Bigwal's point above, we shouldn't let the tiny tail of businesses which find the FRS helpful wag the dog on this one as 99% of traders using this scheme do so because they see it as a profit centre rather than an administrative easing.
I could never get my head round the fact that FRS traders were effectively ripping off their customers by charging them "tax" which they then pocketed rather than paid over to the taxman; and all completely legitimately.
I think you will find HMRC re-defined the purpose of FRS when they re-designated it as tax evasion and changed all the % rates for any individual who had signed up to the scheme or voluntarily registered for VAT when there was a margin to be made!