Flat Rate VAT Scheme and Expense recording in P&L

dcmcguren Registered, FMAAT, AAT Licensed Accountant Posts: 7
Morning all.

I am working with a company that has signed up for the Flat Rate VAT scheme. This is generally where, in exchange for claiming VAT back on the expenditure, they have agreed with HMRC to only pay a certain percentage of their gross sales over. The benefit for doing this is then written off to the p&l as additional income.

My question relates to how we handle the expenses.

We are told that irrecoverable VAT is recorded with the original transaction and this is the case with non-registered companies or portions of VAT that can not be claimed due to things like partial exemption or mixed use. ie the cost of that car rental is increased in the p&l to be net+irrecoverable VAT. So I would assume that we record all expenditure items under the flat rate scheme to be No VAT and record the gross in the p&l?

If I dont, the system that we use will adjust the control account for the VAT liability by the figure and record the net benefit (or balancing figure) in the p&l as income (ie offsetting the purchase VAT).

Or does it simply not matter?

Answers on a postcard ;)


  • douglasstroud
    douglasstroud Registered Posts: 288 Dedicated contributor 🌟 🐵 🌟
    Record the gross amount of the expense including the VAT, but obviously don’t show the VAT as you will not be reclaiming it.
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