Chapter 14 - Flat Rate Scheme

Question 1

Introduction

Answer 1

FRS is available to small businesses. Certain goods and services have a flat rate of VAT under the scheme which is multiplied by the VAT inclusive cost of the good or service to give the VAT due. There is no input VAT to reclaim under the scheme

Question 2

Eligibility

Answer 2

Trader can join if there are reasonable grounds to believe that taxable turnover in the next year will be £150,000 or less.
Must leave the scheme where turnover exceeds £230,000, unless the rise is from a one-off transaction and income is likely to drop below £191,500 the following year. Test is done every anniversary date of joining the scheme

Question 3

Flat Rate Percentage

Answer 3

Varies by trade sector. Relevant percentage is applied to tax inclusive turnover to arrive at the VAT due.
1% reduction applies to first year VAT registered businesses

Question 4

Turnover

Answer 4

Turnover includes all supplies including exempt supplies, supplies of capital assets and dispatches to other EU member states

Question 5

Costs

Answer 5

Input tax is generally not deductivle under FRS unless:
1) capital assets costing > £2,000 - in this case a full input VAT reclaim is allowed

2) Pre-registration input tax - where input tax is claimed on pre reg capital assets, when that asset is sold it must be excluded from flat rate turnover and VAT must be account for on the sale at 20%

Question 6

Ineligibility

Answer 6

Following traders are ineligible for FRS:

• where a trader ceased FRS in last 12 months
• where, in previous 12 months, trader has been convicted of a VAT offence or a dishonesty penalty
• if, within past 24 months, trader was in a VAT group

Question 7

Note

Answer 7

HMRC Notice 733 will be useful