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FRS & limited cost businesses


VAT FRS (Flat rate Scheme)

Hopefully we all know by now, about the limited cost business test introduced on 1st April 2017 for the VAT flat rate scheme.

This means that for many businesses the FRS is no longer viable, but what else should we watch out for with the scheme?


1) The £150k turnover threshold to join is VAT exclusive and taxable turnover only, but the £230k turnover threshold to leave is gross and includes exempt supplies.

2) Output tax is due on reduced-rate, zero-rated and exempt sales under the scheme.

3) Output tax is due on zero-rated exports or EC removals.

4) The Box 6 scheme turnover is gross rather than net.

5) Limited cost businesses have to use 16.5% (tested on a period by period basis).

6) The reverse charge on services is dealt with completely outside the scheme.

7) If goods are brought in from the EU acquisition tax is due in Box 2 but there is no input tax claim in Box 4.

8) International services outside the scope of UK VAT are dealt with completely outside the scheme.

9) HMRC now allow retrospective adjustments to the FRS sector percentage.

10) Certain businesses historically using 14.5% can make refund claims based on 12% if they have used the wrong percentage.


Some helpful links:





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