Please Help in Indirect TAX

mazinynyb Registered Posts: 5 Regular contributor ⭐
Dear All,
Is there any one to teach me the easiest way to differentiate between (Annual accounting scheme , Cash accounting scheme and flat rate scheme) .And if possible with an example.

I would be grateful to you...



  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
    Annual accounting scheme

    You make estimated interim payments to HMRC (9 monthly instalments or 3 quarterly instalments). You do no have to do regular 3 monthly paper work and balance your books.

    You only have to do One Annual VAT return and take into account the instalments payment to HMRC to pay the Final VAT to HMRC

    eg you have paid 9 monthly instalments of £1000 each ( total equals £9000)
    You prepare a single VAT return for 12 months and it shows that you have to pay £12,000 to HMC&E (difference between input vat and output vat). But you have already paid £9000 and therefore you only need to send a cheque of £300 with your VAT return.

    Cash Accounting scheme

    You only pay vat to HMCE on the actual sales for which you have already collected VAT from your customers. Therefore you do NOT pay VAT on sales that are still outstanding as Debtors.

    In the same way you only cal vat input tax for the vat you have already paid to your suppliers. If you buy new machinery of £100,000 plus vat, on 90 days credit term, you cannot claim £20,000 and input vat now to reduce your VAT liability. Thus you cannot claim vat input for all the purchases that are still outstanding as creditors.

    thus total sales =120,000 opening debtors = 24,000 and closing Debtors = £36000
    therefore actual sales inc vat = 120000+24000-36000=108000 = vat output payable to hmrc = £18,000

    total purchases including vat = 60,000 opening creditors = 12,000 and closing creditors = £18,000
    therefore actual purchases inc vat = 60000+12000-18000 = 54,000 vat out put Claimable = £9000

    Net VAT due to HMRC = 18000-9000 = £9000

    Flat Rate Scheme

    This is a very innovative idea.

    If in general you find that the net payment to HMCE (over a number of years) represents 9% of sales then it is logical that the input VAT if Cost of Sales and Expenses represents 11% making a total of 20% VAT of sales.

    To save time and hassle of paperwork you would agree with HMCE that you will not claim input vat for purchases and expenses but will only pay to HMCE 9% of VAT (Net) on sales.

    therefore if your sales are 200,000 net = you will pay £18,000 vat to HMCE and not £40,000, on the other side of the equation you will also not claim any VAT paid on purchases and Expenses.
Privacy Policy