VAT flat rate question - any experts on here?

[Mr Noble]

I've been on the flat rate scheme for a number of years.

I am self employed and get paid commission only which has VAT added.

I pay a flat rate percentage of this back to HMRC each quarter. It's worked fine up till now.

I also have income from rented propertys.

Someone I was recently talking to, told me that I should include this rental income with my work income and pay a percentage of every penny I receive to HMRC.

I find this quite unbelievable and a bit of a shock, and wonder if anyone knows what is correct.

I really can't see why I should pay back VAT on "private" money I get which doesn't have any VAT included.

Edited by Mr Noble on Saturday 23 November 16:04

[sumo69]

This is an extract from the HMRC guidance on preparing the Flat Rate VAT Return:

7.7 Common errors made on VAT returns
Failure to include any VAT on EC acquisitions in box 2.
Failure to account for VAT on EC acquisitions in box 2 at the standard rate.
‘None’ (or ‘£0.00’ for online returns) missed out of box 4.
Forgetting to include exempt income, such as rent, in the turnover to which the flat rate is applied.
VAT exclusive figure is put in box 6, meaning that the flat rate is applied to the net, rather than the gross turnover.
The 1 per cent reduction is applied by businesses that have been registered for more than 12 months.

However, if the rental is completely distinct from your business, it may be seen to be "private" income which may be excluded.

You really need to get some advice as as you suspect there may be a very large VAT liability at stake.

David

[Eric Mc]

The VAT Flat Rate Scheme has many dangerous pitfalls buried within in it. Even though it is promoted as a "simplified" VAT scheme - it does, in fact, cause massive complications in certain circumstances.

[sumo69]

As I stated in my reply , if these are distinct from your business they may be considered private income and therefore excluded from the FRS.

Do you not have an accountant that you could refer this to?

David

[Mr Noble]

Hi David,

I will refer it to my accountant and see what he comes up with.


I suspect the answer will be either to incorporate my business or to come off the flat rate scheme.

Thanks for your suggestions Sir.

[sumo69]

Mr Noble said:

Hi David,

I will refer it to my accountant and see what he comes up with.


I suspect the answer will be either to incorporate my business or to come off the flat rate scheme.

Thanks for your suggestions Sir.

That's 1 solution but that assumes you do actually have a problem - if you were my client I would be telling you that I don't think you do UNLESS you are letting excess office space or similar.

Whether you should be incorporated shouldn't depend on this - that's a different ball game!

David

[Eric Mc]

Just attended a VAT lecture given by Dean Wootton and he is of the opinion that residential letting income (say, from a buy to let) WOULD be VATable under the Flat Rate System for a VAT registered sole trader.

I do not think this is fair but it does seem to be the case.

[megaphone]

OP are you married? Maybe your wife could receive the rental income, would that work?

[Eric Mc]

Only if the property is in her name.

However, having the property in BOTH names should work too.

[sumo69]

Eric Mc said:

Just attended a VAT lecture given by Dean Wootton and he is of the opinion that residential letting income (say, from a buy to let) WOULD be VATable under the Flat Rate System for a VAT registered sole trader.

I do not think this is fair but it does seem to be the case.

Saying that is why he does lectures rather than working with clients - I reckon that's plain wrong as demonstrated by how simple it is too get our off!

[sumo69]

Eric Mc said:

Just attended a VAT lecture given by Dean Wootton and he is of the opinion that residential letting income (say, from a buy to let) WOULD be VATable under the Flat Rate System for a VAT registered sole trader.

I do not think this is fair but it does seem to be the case.

Saying that is why he does lectures rather than working with clients - I reckon that's plain wrong as demonstrated by how simple it is too get our off!

[Eric Mc]

It certainly doesn't seem fair if it is the case.

But a couple of years ago, another lecturer said that Interest Received was also caught in the FRS trap. Now it apparently isn't. If the "experts" can't get it right, what hope has the ordinary trader.