I have a client who is registered for the flat rate VAT scheme and has a little bit of rental income which is also included in turnover to calculate the VAT due to HMRC. He has a letting agent and I am wondering if I have to include the gross rent or could I use the net rent for inclusion for the purposes of the flat rate calculation?
Arthur Weller replies:
If you look at HMRC’s VAT Notice 733 (www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses) at section 6.2 second bullet point, you can see that the value of any exempt income, such as rent, is included in flat rate turnover. If you look in section 9.4 there, which deals with cash-based turnover, you can see that if a net payment is received, the full value before any deductions is included in the scheme turnover. See there in the second bullet point that 'where commission or payment for expenses has been deducted by a factor or agent collecting money on your behalf' is an example of needing to include the full value.
This question was first printed in Business Tax Insider in March 2019.