VAT - Flat Rate Scheme

Natsmomma

This is my first encounter with this scheme, so please forgive my ignorance!

A new client uses it and their previous accountant used to rework the VAT at year end according to 'normal rules' and post a VAT saving as a minus overhead figure in the P & L (thus reducing overheads, but effectively increasing Corporation Tax payable). This seems odd to me, given that all liabilities have been accounted for within the VAT scheme chosen, but are they right to do this?

If I'm being thick, please excuse me!!!

burg

If I am understanding correctly then the only way I think you would possibly do this is if the client still entered all the overheads as net of VAT.

Far simpler to enter everything gross and then calculate the FRS VAT each quarter and journal it in.

groundy

This is common practice to show the VAT saving on FRS and yes corporation tax would be payable.

For Example:

Invoice £1000 + £200 VAT to customer - customer pays £1200

FRS (eg 12%) £1200 * 12% = £144 VAT paid therefore your client has made an "additional profit" of £56 which is subject to corporation tax.

It is usually done this way were there is a sales ledger in place. When it is cash accounting and no debtors then yes you would just post gross and adjust for the FRS output VAT.

Hope this is clear :001_smile:

Natsmomma

Ah, thank you Groundy. It makes a lot more sense now as you're talking about the VAT saved purely on sales which is profit and therefore liable to Corporation Tax.

Go it, thanks!!

deanshepherd

Convention is to post it to turnover, rather than a negative overhead.

burg

I see now what the question is at. Yes I follow and agree to sales/turnover rather than an overhead.

stevo5678

deanshepherd wrote: »

Convention is to post it to turnover, rather than a negative overhead.

Although I've seen it many of times shown on a seperate line I agree with Dean.

HMRC recommend you to net it off with turnover as this will obviously be your net sales.

Plus it's a bit misleading calling it a vat saving as you have lossed claims of input tax aswell...