I posted around a week ago regarding the relationship between the vat reverse charge scheme and the flat rate scheme. I have since spoken to the vat technical team at HMRC and they have confirmed that I shouldn’t be paying vat twice (once from the vat retained at source via reverse charge and the other through my flat rate quarterly return). I did a test invoice for £1000 and used the built in reverse charge option on the invoice which shows the vat being added and then removed leaning the original £1000. But when I go into a creating a vat return and export the calculation of how the system has come to the amount of vat payable it still shows my flat rate being deducted off the £1000 even though this invoice has a reverse charge on it.
Am I missing something on this calculation because it seems like the system is still calculating the vat rate on an invoice that has a reverse charge on it?
You cannot claim vat under flat rate scheme unless its capital in nature , further condition can be seen on .gov site. If you were under standard scheme you wont have to pay vat on reverse charge but under flat rate sadly you have to, its same with say google reverse charge
I understand I cannot claim VAT back on the flat rate scheme but I’m not trying to claim anything back. When I spoke to a vat technical advisor they explained that on the flat rate scheme the vat is taken at source through the reverse charge scheme but then that is it for that invoice for vat. But when I export the vat calculation out from QuickFile it still shows the flat rate percentage being deducted although the reverse charge has already been taken. Which in affect means paying vat twice which the vat advisor said isn’t correct.
Dont take HMRC advisors seriously, they have very basic knowledge and are there to point you to relevant vat notices. Reverse charge VAT is not taken at source, that’s not how it works, it is not CIS
The people I spoke to at VAT are the technical advisors that require a booking. Not the people on the end of the phone as soon as you call.
Also as you can see from the attached picture. The technical guide even shows how vat is taken at source and not paid to myself or others subject to the reverse charge
Yes but I also think you are missing the point that you shouldn’t be on the flat rate and within the reverse charge.
The two aren’t comparable as you’ve seen, vat is being calculated twice, once as a percentage of your invoice and the other where the contractor has paid it over on your behalf.
To fix the quickfile issue you should deregister from the flat rate.
In theory you should put yourself in a position where the only vat calculated is that of expenses, as hmrc have pointed out, you’re likely to become a vat reclaimer
Reverse charge supplies are not to be accounted for under the scheme. Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC and recover it simultaneously on the same VAT Return.
Users of the Flat Rate Scheme will have to consider if it’s still beneficial to them bearing in mind that under the scheme they cannot recover VAT incurred on purchases of materials, overheads and so on.
From the sub-contractor’s perspective we believe that the NET sale value should be reported in Box 6, but excluded from the Flat Rate turnover. This will be addressed in an update this weekend.
Businesses on the FRV scheme that have a large proportion of their supplies which are subject to the domestic reverse charge would still likely be worse off under the new rules and should consult with their accountant to look at the benefit of leaving the scheme.
Pre 1st March
£1,000 + £200 vat invoiced to contractor
FRV payable @9.5% = £114
NET retained: £1,086
1st March and beyond
£1,000 invoiced to contractor
£0 vat payable
NET retained: £1,000
Thank you for the update on the QuickFile system. So this will mean that once an invoice has had a reverse charge applies then the remaining amount will not be subject to the flat rate percentage?
I only have 1 job that uses reverse charge and it’s at 5% vat anyway. Coming off the flat rate scheme wouldn’t really be beneficial at this time but if I do end up getting another couple of jobs who pay via CIS I shall look at deregistering from flat rate.
