I've got a client who up until now has been on cash-basis FRS, but from the start of next VAT quarter (June) will be coming out of FRS to go onto a normal cash accounting scheme.
I'm a bit unsure on how this works with creditors at the point of leaving. If a supplier gave him an invoice dated 31/05/16 when he was under the FRS, but it wasn't paid until 15/06/16, should he be able to claim the VAT?
I'm thinking not but I can't confirm it. I know for certain things like rate changes even though under cash accounting the tax point is when an invoice is paid, the rate in force at the time of the invoice can be used... so does that mean because in May he was under the FRS and so couldn't claim VAT, he cannot claim VAT on the payment?
The HMRC guidance, as usual, is not very helpful!! All I can find is this section in Notice 733:
"If you use the cash based method under the Flat Rate Scheme and you move immediately to the cash accounting scheme you must follow the rule described in paragraph 9.6. Para 9.6: What if I want to stop using the cash based method? The following rule has the force of law If at any time you stop using the cash based accounting method, you must account for VAT on all the supplies made by you while you were using the method for which payment has not been received. The supplies must be included in your scheme turnover in the return for the period in which you cease to use the cash based method. The only exception to this is if you cease to use the FRS, but immediately start to use the cash accounting scheme described in VAT Notice 731 Cash accounting. Any business that leaves the Flat Rate Scheme and immediately starts to use the Cash Accounting Scheme should apply the appropriate flat rate percentage to any supplies made while part of the Flat Rate Scheme when payment for those supplies is received
So this only covers income and not cross-over creditors!!"
That is so confusing to say the least. HMRC never fail to be as unclear as possible !!
Have read and re-read their guidance and keep coming back to, `The following rule has the force of law` line. Personally, I would ring HMRC up and try to get some more clarification on this and not be fobbed off with the usual read the guidance comments from them.
If you're on the cash basis flat rate scheme then logic would suggest the answer is "yes".
Under the cash based FRS, the rate of VAT payable is based on the money received from customers - and that percentage is based on typical figures for the relevant industry, which should be the same regardless of whether businesses are on a cash basis or not. Therefore, the VAT can't be deemed to have been claimed under the VAT rate scheme if it's on a cash basis.
But that's logic. I wouldn't like to say definitively in terms of actual rules and regulations.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
If anyone wanted an update I ended up calling HMRC to confirm the treatment of creditors on leaving the FRS and they advised that you would not be able to claim VAT on supplier invoices raised while under the FRS that were paid after leaving, even if going onto using a cash basis, which is what I suspected.
They couldn't find anything in the guidance (well that's just great if a client wants to know where I'm telling them this from!!) but said something along the lines of when they refer to cash accounting changing the "tax point" it's not really doing that, only when it's accounted for on a VAT return.
So if there was a phone bill raised in January when under FRS but not paid until February when on normal cash accounting, you would not be able to claim the VAT as at the actual tax point (January) you would not have been able to claim it and so can't on the payment.
*sigh*
-- Edited by fin6y on Monday 23rd of May 2016 05:32:09 PM
We all know that you can be told a pile of pants over the phone by the staff of the old HMRC! I would have a word with our resident expert - Les Howard. vatadvice.org/contact/
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I wonder if there's some confusion [at HMRC] over the actual scheme in use.
Your initial post says the client is on the cash-basis FRS, and will be going onto normal cash-based.
i.e. before and after, it's still a cash basis.
What you're saying HMRC has said is (quoting the exact bit...) "that you would not be able to claim VAT on supplier invoices raised while under the FRS that were paid after leaving, even if going onto using a cash basis"
Note what I've emphasised. I suspect whoever you were speaking to at HMRC may have thought you were using the invoice based FRS, and switching to normal cash based accounting.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
I made it very clear to HMRC that they were currently on a cash based FRS scheme and were leaving to go straight onto a normal cash based scheme. The person I spoke to couldn't find anything in the guidance on supplier invoices either and so got her "supervisor" to run it through with me as well, so I'm fairly confident they understood the query at least.
Thanks for the link Joanne it's always good to get someone else's opinion on these matters! I will see what Les says.
