I have been approached by someone who is in a right mess with their (sole trader) accounts. They require 2 years of VAT Returns to be calculated and submitted.
They are on the Flat Rate VAT scheme, which I have used before for clients dealing within the UK only, but wanted to check how the following should be declared?
1) The have an online shop, and sell to customers around the world; UK, Europe and America/Canada/ Australia. Am I correct in thinking it is just the UK and Europe sales that go onto the Flat Rate Vat return (IE not the rest of World sales)? They cannot remember what category of trade they set up on, so I need to confirm with HMRC what % rate to apply anyway.
2) They purchase a lot of stock from Europe. How should this be shown on the return? Reading up on it, it looks like I need to calculate the sterling equivalent to pay 20% Sales VAT (Box 2) but are then unable to put the 20% Purchase VAT in Box 4 to net it off, as would happen be under the Standard VAT Scheme. Is my understanding correct? If that is the case, it seems they were massively misinformed to register under this scheme in the first place!
Guidance from anyone with experience in these circumstances would be much appreciated!!
Perhaps let us know what the products being sold are and does all of the stock purchased actually hit these shores or does some go direct from 'Europe'(which country?) to wherever its being supplied?
covers off both questions if its goods straight in and out methinks, unless its maybe a florist.
Usually with FRV they would get a 1% reduction in year one so check when he was registered but also worth doing some digging as to whether or not he is entitled to that on such late returns.
Also - care re the changes afoot re the flat rate scheme, although it sounds like you will be suggesting an alternative to him perhaps before they kick in anyway.
Maybe Les can advise further
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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
They purchase clothing/ footwear/ accessories from Austria, bring it into the UK, then sell on via their online shop to individuals (not other suppliers) across the world. All sales go through Paypal and convert to sterling.
Sorry to bump an old-ish post, but sounds like you've taken on quite a handful Liz!!
Regarding your question on whether you would include the sale of goods to customers outside the EU in the amount to work out the FRS on - the 'Exports/Dispatches/Supplying Goods Abroad' HMRC notice says that exports to non-EU countries can be zero rated for VAT, and as zero rated sales are something that should be included in the FRS turnover it looks like yes these potentially should be included.
"VAT is a tax on goods used in the EU, so if goods are exported outside the EU, VAT isnt charged. You can zero-rate the sale, provided you get and keep evidence of the export, and comply with all other laws."
On your second query about the Box 2/4 adjustment - I've never had anyone on the FRS who has this type of purchase but this sounds like something for HMRC to advise on. If it is the case that they have to adjust for it as an output but can't claim it back then this does seem like the right scheme for them - as the returns for the 2 years haven't yet been filed, isn't it possible to come out of the scheme from the final day of the last actual submitted return, and so use a normal method for these outstanding ones...?
The issue that stood out to me most from your message above is that they are selling to "individuals" - again, no experience in actually having to deal with this in practice but would these not be "distance sales" in which case your client should potentially be VAT registered in all these individual countries?!
Hi
First of all - Liz - apologies - I didnt even see your response of 14 Feb! I dont get updates when someone posts, I just rely on seeing things as 'unread' but no idea why I didnt spot this one, although Ive had a bombed 2017! Before I add comment - did you sort things as the link I sent you covers off the issues methinks anyway, but if you are not sure, can you bob back on.
Faye - the zero rated - would this apply? In normal circs the items themselves can be if there are any childrens products, but on the flat rate scheme sales to EU countries (even if normally zer or exempt) need to be included in the taxable turnover calc and this is why the scheme is probably not a good idea in this case.
The guide also covers the acquisitions needing going on the return.
Dont want to add much more at this stage, if Liz has managed to sort it, so hopefully she will come on and advise (and hopefully this time someone will respond quicker than last time!)
__________________
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
My rule-of-thumb is this: do not use the FRS if you are involved in cross-border trade!
HMRC Notice 733, Chapter 6 does provide some answers, but will not help you determine whether you best staying in the scheme!
Joanne - yes I agree on the zero rated sales needing to be included in the turnover calculation, that's what I put in my message (or at least meant to)!
