Pls help With flat VAT rate

Lina Registered Posts: 41 💫 🐯 💫
Can someone help me with flat VAt Rate. I am preparing Accounts for LTD, which pays Vat at 10%. I do not understand were to show the surplus of vat.

Let say sales are 20,000, plius vat of 17.5%
So accounts will look like this
Dr Cr
Sales 20,000
Bank 23,500
Vat Control 3,500

But because they run a flat scheme, they will have to pay vat only at 10%, which is 2,000. So were (3,500-2000)= 1500 goes? I mean were to show it in accounts?

Vat Account
Dr Cr
2000 bank 3500 customer


Thank you for answer


  • sloshed
    sloshed Registered Posts: 100 🎆 🐘 🎆
    Hi Lina

    At the practice where I work we show it as follows:-

    Gross Turnover including VAT 23500
    Flat Rate Adjustment (1500)
    Turnover 22000

    However this is for a sole trader, so I am not sure if this would be right for a Ltd Company.

    One other point to note is they should have paid £2350 and not £2000 as the 10% is on total income and not on the net.

    Hope this is of some help
  • Poodle
    Poodle Registered Posts: 711
    Hi Lina

    Sloshed is correct in that the 10% FR VAT must be calculated on the gross sales amount of £23,500 and so you should have paid £2,350 in VAT

    You should create an account in your P&L called 'Flat Rate Adjustment' and post the difference from your VAT control account there at the end of each quarter.

    For this the journal should be

    DR VAT control £1,150
    CR FRA £1,150

    This will leave £2,350 on your VAT control account to clear to nil when you post your cheque.

    If you do not have one then you should also get the VAT flat rate scheme notice 733 from HMR&C either in hard copy or download.

  • Lina
    Lina Registered Posts: 41 💫 🐯 💫
    Thanks a lot for your answers. It really helped as I did not know that 10% of flat rate is calculated on the total amount of 23,500. I thought it has to be calculated on 20000. ( vat returns were done by client and i still have not seen them).
    I also noted about were to record the surplus in accounts.
    But i still do not understand how 1150 will be trated in accounts. Is it going to be added to the sales? When i create this flat rate adjustment account, is it an income account?

    Thanks a lot
  • Poodle
    Poodle Registered Posts: 711
    Hi Lina

    Although this is income it is not added to 'sales' it is included in 'other business income' on the tax return.

    Knowledge based businesses, for example, consultants and dare I say it accountants as well, can profit using the FRS even by registering for VAT when still under the threashold.


  • qwerty
    qwerty Registered Posts: 82 💫 🐯 💫
    Treatment of flat rate VAT

    Hi Lina

    Sloshed is correct in the treatment of flat rate VAT. In effect it is added to sales.

    Turnover in the accounts is the gross turnover (including VAT) less the flat rate VAT due to HMRC. All the expenses are stated gross in the accounts.

    For example, I invoice my customers £20,000 plus VAT at 17.5% = £23,500.
    I pay HMRC flat rate VAT - £23,500 X 10% = £2,350

    When preparing my accounts, my turnover will be:
    £(23,500 - 2,350) = £21,150

    I would then take off my gross expenses (inc. VAT) as normal to work out gross and net profit.

    The above is how HMRC expect accounts to be prepared, as stated in their Notice 733 - Flat Rate Scheme for Small Businesses See chapter 7.8.
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    I agree with qwerty.

    By all means use a separate code for bookkeeping purposes but it should be included within turnover in the final accounts and on the tax return.
  • Poodle
    Poodle Registered Posts: 711

    I don't agree:001_smile:

    I show sales net of the 17.5%

    There are two reasons why I do this

    Firstly, it makes it easier to fill out box 15 on SA103F (Page SEFN4)

    Secondly, when I and the VAT man reconcile box 6 on the VAT 100 return(Grossed up on a FRS return) all that I/they have to do is to take the sales figure and add 17.5%

    But at the end of the day it's all taxable anyway :laugh:

  • Lina
    Lina Registered Posts: 41 💫 🐯 💫
    Thanks a lot everyone, it really helped.:thumbup1:

    Before i asked this question here, I called AAT technical support. Lady, who answered did not know what I was talking about. She said, she does not deal with the tax, only technical issues. I did not think that this questions was about tax anyway. :tongue_smilie:
    I doubt if I ever call techincal support:mad2:
    So you guys really helped me:thumbup:
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