Flat Rate VAT & Cash Accounting

jackieshepjackieshep Feels At HomeRegistered Posts: 68
From the next VAT quarter the company I am working for are hoping to change to Cash Accounting and Flat Rate VAT.

The steps I think I need to take are:

1. Process dummy credits for all sales invoices and purchase invoices that are unpaid.
2. Tick box for cash accounting on "Company Preference"
3. Put sales invoices back onto system with 17.5% VAT as I use Sage generated invoices.
4. Put purchase invoices back onto system and make sure the records are set at T9 rate.
5. At next VAT return date calculate VAT as per normal which should show purchase VAT as zero and sales VAT at 17.5%.
6. Prepare return manually calculating sales VAT at flat rate % of box 6 (total value of sales excluding VAT).

Could I please ask that somebody check that I have worked this out correctly.

Many thanks

Comments

  • RonnieRonnie Settling In Nicely Registered Posts: 20
    Firstly, when you do manually calculate the FRS from the Sage generated VAT return, the trade sector percentage is calculated on the TOTAL of the net sales AND the sales VAT, ie GROSS sales. Enter any capital equipment purchase over £2,000 gross as normal T1, as VAT can be reclaimed. Make sure you agree your bank reconciliation before doing the VAT.

    Not sure about all the steps on Sage to transfer to FRS and Cash Based Scheme. But if you are using the Standard Scheme on Sage currently, surely you are paying over all sales VAT and reclaiming all purchases VAT on invoices dated up to the end of that last quarter's VAT Return? So the way you are suggesting seems you would be "duplicating" the sales VAT payable. Therefore, should the tax code on dummy sales credits/invoices dated prior to change of scheme also be T9? If I was doing this bookkeeping manually or on Excel, I would set up a separate column for payment of sales invoices/debtors already accounted for under the VAT Standard Scheme on a previous VAT Return, and would not include them again in the FRS scheme VAT Return.

    Or, if you keep a separate printed list of VAT Standard Scheme debtors totalling net and VAT figures on the last day of your final Standard Scheme VAT Return, you could manually deduct these from the net and VAT figures shown on the first Sage VAT Return, (assuming all Std Scheme debtors have paid by then). This would mean you would not need to do any dummy sales invoices/credits, and would calculate FRS receipts only on sales invoices dated since starting to use the FRS scheme. Effectively, your first VAT return payment would be less dependent on debtors days, as it would be based on receipts from sales invoiced from the first day of changing to FRS scheme only.

    Whatever you decide to do, I'd check it out first with the HMRC help line. There's probably also some advice in the FRS booklet.

    If you are already using the Cash Accounting Scheme only, there is no need to do anything to the sales invoices. I would not be happy about not reclaiming VAT on purchase invoices dated prior to the date of changing schemes, so would get the supplier payments up-to-date if cash flow allows.

    You need to record EEC purchases using the correct EEC purchase tax codes, T7/T8.

    You also need to create a P&L "Flat Rate VAT Adjustment" nominal Code 4099, which is within the Sales section of the Chart of Accounts. (This is to record the reduction in VAT due as an income to the business).

    I print a copy of the VAT Return, check the detailed report, and manually calculate the VAT due on the GROSS sales figure from the VAT Return boxes, using the trade sector percentage (less any £2000+ purchases VAT on the VAT return). I then follow the normal VAT reconciliation procedure and use Sage's automatic VAT transfer journal into the VAT Liability Account Code 2202. (Outstanding debtors' VAT remains in 2200 Sales Tax Control Account). I then journal into 4099 the difference between the VAT paid to HMRC (coded to 2202) and the balancing amount in the VAT Liability Code 2202 account using the last day of the VAT period as the date of the journal. This clears Code 2202.

    2202 VAT Liability Debit
    4099 FRVA Credit

    However, quickly reading Sage's FRS Scheme article dated 2007, they suggest a more long winded approach (which I don't understand) using bank reports and the following journal BEFORE reconciling the VAT return:

    2200 Sales VAT Debit
    4099 FRVA Credit

    Perhaps you can acquire a copy of Sage's latest article on FRS. I think the newer versions of Sage do now calculate FRS VAT for you.

    FRS trade sector percentages increase with 20% VAT rate on 4 January 2011. The trade sector rates have increased proportionately, so are not now so advantageous. Using old VAT Returns, do a rough calculation on the VAT paid versus GROSS sales trade sector percentage(s) over the past couple of years before changing schemes.

    Best time to change schemes is at the start of your new financial year - and after the change of VAT rate to 20% !! With Cash Accounting, you need to record separately receipts of sales made at 17.5% and 20% VAT, which you may have to do manually (I use a discrepancy report in Line 50, but don't think this is available on Sage Instant). Calculating FRS using Sage has been a lot more work over the past couple of years with the change of VAT rates.

    Also consider using the Annual Accounting Scheme, which means only one VAT Return per year, which should be the same as your Sage financial year.
  • jackieshepjackieshep Feels At Home Registered Posts: 68
    Many thanks for your help Ronnie.

    It's a lot to get my head round, but a very comprehensive answer. Thank you for taking the time to explain it.

    Jackie
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