Correction for overpayment of VAT when on flat rate scheme in the past

Mark 99

It's not uncommon for small mistakes to be made on VAT returns, which can then be corrected in a subsequent return. This situation is slightly different, as it involves a company which was on the flat rate scheme but is now on standard VAT.

About 18 months ago, when on the flat rate scheme (the rate was 10% for this business), £1000 was paid into the bank account and was assumed to be sales, so increasing the VAT due by £100 exactly. It now looks like this was actually a transfer from a deposit a/c, not sales at all.

If this turns out to be the case, in order to make a correction on the VAT return (please remember we are now on standard VAT accounting), Box 1 should be reduced by £100, so reducing Boxes 3 and 5. But what would people suggest doing to Boxes 6 and 7? You could reduced Box 6 by £500 (VAT now being 20% rather than 10%). Or, as the flat rate scheme percentage is supposed to take account of sales and purchases, you could reduce Box 6 by £1000 and Box 7 by £500.

Apart from the correction on the VAT return, there is the question of how to account for it on the profit & loss. When using the flat rate scheme, sales are shown gross and VAT is treated as a revenue expense. I wonder if, on this year's profit & loss, £100 could be shown as sundry income and the VAT liability adjusted accordingly.

If anyone has any comments or ideas, I'll be pleased to hear from them. [It may still turn out that the £1000 was actually sales after all, in which case none of this will apply! The manager will decide.]

Regards
Mark.

JodieR

I don't know the answer and my guess would be that if you phoned the VAT helpline they'd not be able to give you a difinitive answer anyway. If it were me I'd make sure that Boxes 1 and 3 were correct and not worry so much about boxes 6 and 7. Whichever way you decide to do it sounds reasonable and I'm sure that in the case of a VAT inspection they'd be happy with the reasoning either way.

deanshepherd

I would make the corrections as if you were still in the Flat Rate Scheme.

i.e. £100/£1,000

Mark 99

Thank you

Just a quick note to thank you both, Dean & Jodie, for getting back to me with your advice and encouragement.
It's much appreciated
Mark.