Flat rate VAT scheme..?

ernie-money

I'm very confused, and was hoping someone could set me straight...

My partner is self employed, and currently works for an agency, who pay him weekly via a company called exchequer solutions. (This could be bacuse the agency is Irish and don't have a UK based office?) Exchequer Solutions charges OH £22 for processing the wages every week, which is slightly frustrating, but at the end of the day he's got a job, so don't want to grumble too much...

Now he's been approached by a company called Oliver, Bell & Kinge LLP (accountants) who told him that they would be able to reclaim part of the VAT on that weekly charge for him.
They've sent him documents to sign, and I've had a look through it and it seems that they will register him to become VAT registered under something called a flat rate VAT scheme.

Now I don't know a lot about TAX and VAT, but I just feel like something isn't quite right...
Surely if he's just working for an agency, he shouldn't be VAT registered, and if he is, doesn't it have other implications, for instance if he does work for anyone else - would he need to add VAT to his invoices etc...

Or if this flat rate VAT scheme is completely above board and right for him, couldn't we apply to the inland revenue direct, instead of paying this accountancy firm a share of the amount he would get back..?

I hope this makes sense and isn't too messy, I just feel very weary of the situation and hope that someone would be able to calirify! Oh and - I hope I've posted on the right board!

Thanks in advance.

Pennywise

You certainly shouldn't pay "a share" of the tax refunds to the accountancy firm. Most decent accountants will do this for a small fixed charge, and as you say, you could probably do it yourself if you research the HMRC website.

liam8282

I think there are more factors you need to look at, if your husband registers for VAT, depending on the job he does, he will need to charge VAT on his invoices.

For the sake of claiming £2 a month back in VAT, he may end up pricing himself out of the agency work, if he has to start charging VAT.

Best bet, go have a chat with an accountant. Bring plenty of information with you, so you can get the correct advice.

JasonLVC

Pennywise wrote: »

You certainly shouldn't pay "a share" of the tax refunds to the accountancy firm. Most decent accountants will do this for a small fixed charge, and as you say, you could probably do it yourself if you research the HMRC website.

I've not heard of the firm in the OP, but I am aware of a number of firms offering a flat rate VAT refund "scheme" aimed at self-employed people who work with agents/back office/umbrella type set-ups.

Say you are a sole trader doing something, and you have a contract with an agency. You bill them the agency for your time, agency pays you less their admin/back-office fee. Everyone happy.

Consider that the sole trader can register for VAT at any time, the invoice to agency would then be VATable, agency can reclaim that anyway so no additional cost.

The "scheme" is the sole trader back dates their VAT registration to the first day they ever started working for the agency - lets say 5 years ago.

The registration goes in on flat rate scheme basis backdated 5 years. The sole trader is then VAT registered and has now failed to submit a VAT return for the last five years! Sole trader issues VAT only invoice to agency for last 5yrs worth of VAT - lets say its £20k (based on turnover of £100k over the 5yrs).

Agency pays sole trader the £20k VAT (it reclaims this, so no issues for agency). Sole trader then submits 5yrs of backdated VAT returns(!) but paying over at the flat rate % not 20%. Lets say flat rate for sole trader is 14%, so he would pay over £16,800 (which is £100k + 20% VAT x 14%).

There will be no penalties for backdating a VAT registration, there would be interest at 3% over the 5yrs which is about £2k but sole trader ends up £1,200 up on the deal after the interest charge is paid to HMRC (ie, £3,200 saved by using flat rate 14% which comes from £16,800 due instead of £20k and then less the £2k interest leaving £1,200 free money.

Factoring in the 1st year gets a 1% discount on the flat rate (so 14% down to 13%), plus pre-VAT registration expenses can be reclaimed too, the sole trader comes out up on the deal everytime, my figures above are just simple example but you can refine it to increase the amount trader keeps.

Its legit, not avoidance, just exploits the mechanics of the flat rate scheme which is not illegal. Trader can always then de-register for VAT the following month and go back to being unregisted but stil gets to pocket the £1,200

That's one for you to get your head around!

JasonLVC

ernie-money wrote: »

My partner is self employed, and currently works for an agency, who pay him weekly via a company called exchequer solutions. (This could be bacuse the agency is Irish and don't have a UK based office?) Exchequer Solutions charges OH £22 for processing the wages every week, which is slightly frustrating, but at the end of the day he's got a job, so don't want to grumble too much...

Now he's been approached by a company called Oliver, Bell & Kinge LLP (accountants) who told him that they would be able to reclaim part of the VAT on that weekly charge for him.
They've sent him documents to sign, and I've had a look through it and it seems that they will register him to become VAT registered under something called a flat rate VAT scheme.

Now I don't know a lot about TAX and VAT, but I just feel like something isn't quite right...
Surely if he's just working for an agency, he shouldn't be VAT registered, and if he is, doesn't it have other implications, for instance if he does work for anyone else - would he need to add VAT to his invoices etc...

Or if this flat rate VAT scheme is completely above board and right for him, couldn't we apply to the inland revenue direct, instead of paying this accountancy firm a share of the amount he would get back..?

I hope this makes sense and isn't too messy, I just feel very weary of the situation and hope that someone would be able to calirify! Oh and - I hope I've posted on the right board!

Thanks in advance.

To answer your questsions :-

Yes, if husband is VAT registered then any income he earns would fall under the remit of VAT. You don'tsay what he is but as it involvesan Irish agency, I'll go with building work;).

Any work husband does on his own, outside of the agency agreement, would be subject to VAT so you are right to take this into consideration.

If on the flat rate you lose the ability to reclaim any VAT on your purchases, so the VAT charegd on the wage bill wouldn't be recoverable anyway on going but would be able to reclaim the VAT charged on the wage charge 6 months prior to VAT registration.

Flat rate may still be a good thing, regardless of being able to reclaim VAT or not, depends very much on husbands outgoings/costs and what sector/trade he operates in.

Its not unusual for a person to register for VAT and charge VAT to an agency, indeed most agencies nowadays insist the people on its books are VAT registered, the exception being if the trade sector is medicine/healthcare.

If it is just a straight forward flat rate application without the backdating scheme I described in previous post, you just need to do the VAT registration online via HMRC website - or if you prefer paper, you need a VAT1 (registration form) and a VAT600FRS (flat rate form), you can Google these for the .PDF's. If you do want to operate the backdating scheme to earn a few quid more it may be best to let the accountant folks do it or just speak to your average one-man band accountant/book-keeper with a bit of VAT nounce and they should help you through.

ernie-money

JasonLVC wrote: »

To answer your questsions :-

Thank you so much for taking the time to answer so thoroughly!
I'm not sure if it's the right thing to do or not, as he has done other work earlier in the tax year without charging vat, and not sure how long he will be working where he is. Will have a think through everything you've written here & try to make sense of it all!

JasonLVC

ernie-money wrote: »

Thank you so much for taking the time to answer so thoroughly!
I'm not sure if it's the right thing to do or not, as he has done other work earlier in the tax year without charging vat, and not sure how long he will be working where he is. Will have a think through everything you've written here & try to make sense of it all!

My pleasure.

What's your husbands trade/work and rough sort of income from agency and from `other work, no specifics please its a public forum but we should be able to refine things so you are a little cleaner as what's best to do..

ernie-money

Thank you so much!

He generally works in the building trade, but at the moment he's working as a machine driver on a new road that's being built. He was working on the books for the first 8 months of this (calendar) year, but has since then been self employed, being paid through the agency. Earnings have been about the same, between 400 - 500 per week before tax, initially taken as PAYE, and now being deducted under the construction industry scheme I believe it's called.

I hope this is enough info for you to understand the situation, but anything else, just ask.

Thanks again!

TG1_2

Hi guys,
I'm pretty much in the same situation as OP, difference is I have went ahead with the vat FRS but I have encountered a different problem.
Let's say I'm in the husbands shoes but I have my own accountant deal with the vat instead off OBK. I then let OBK know that I have went ahead with it and I have to charge them backdated vat (say 9 months which is when I started working with these people) as HMRC instructs I have to do. OBK are now telling me that they are still taking their 30% cut even though my accountant is handling my affairs. They say that they can do this as it's the first initial payment to me. Can they really get away with this???
They haven't yet completed any payments and I have told them that I'm not happy about this. They don't even handle my tax affairs so how can they just think I'm going to let this go???