VAT FRS implications of using a substitute

[Flat Eric]

All,

I've been wondering about this for a while.

Lets say that you want to use a substitute on your gig. Your substitute invoices you for, say, £1000 + vat.

You then bill the client/agency for the £1175.

You're FRS obligation is applied to your gross invoices so you'll have a VAT liability of £152.75 (@13%).

You've now had to pay out £175 worth of VAT to your substitute, yet you received £175 from the client but you still have a liability of £152.75..

Am I talking bollox or is this genuinely a problem if you intend to use a sub.

[Viktor]

Yes this is a genuine problem if you are on the flat rate.
You should switch to another VAT scheme and offset the input VAT against the output VAT.
E.g. received invoice from substitute £1.000 + VAT, invoice to agency 1.000 +VAT, Input VAT = £175, Output VAT = £175, 0£ to pay...

Viktor

[Old Greg]

I seem to remember that on the FRS, you can still claim on invoices over a certain amount (2k?). Is this right? If so, get them to invoice you at that threshold.

[Bluebird]

I seem to remember that on the FRS, you can still claim on invoices over a certain amount (2k?). Is this right? If so, get them to invoice you at that threshold.

isn't the 2k only for capital purchases rather than services ?

[Old Greg]

isn't the 2k only for capital purchases rather than services ?

Fair enough. But when I worked in the NHS anything could be 'capitalised', but then HMRC wasn't breathing down your neck.

[Flat Eric]

Yes this is a genuine problem if you are on the flat rate.
You should switch to another VAT scheme and offset the input VAT against the output VAT.
E.g. received invoice from substitute £1.000 + VAT, invoice to agency 1.000 +VAT, Input VAT = £175, Output VAT = £175, 0£ to pay...

Viktor

Can you switch to one vat scheme for, say, a couple of weeks. then switch back to FRS ?

I'd have thought this wouldn't be allowed..

[VectraMan]

Can you switch to one vat scheme for, say, a couple of weeks. then switch back to FRS ?

I'd have thought this wouldn't be allowed..

It's just taken me 3 1/2 months to get onto the FRS...

[[email protected]]

changing vat scheme

You can change VAT scheme on commencement of a vat quarter. Once you have changed, you cannot change again until a 12 month period has lapsed.

[minstrel]

Am I talking bollox or is this genuinely a problem if you intend to use a sub.

Yes - its a problem.

If you are on the 13% FRS percentage you need to make sure you VAT inclusive income is more than about 8 times your VAT inclusive expenditure.

If you are subbing a lot of stuff out its highly likely your income is going to be less than 8 times your outgoings, so I'd go back to normal VAT asap.