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

Mark 99Mark 99 New MemberRegistered Posts: 13
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.

Comments

  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    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.
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    I would make the corrections as if you were still in the Flat Rate Scheme.

    i.e. £100/£1,000
  • Mark 99Mark 99 New Member Registered Posts: 13
    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.
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