VAT - Flat Rate Scheme

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
I've different stories about this and something is concerning me.

I have my own thoughts on this but... can anyone else who has had dealings with this explain the bookkeeping side to me.

Regards

Dean

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    One of my clients uses the flat rate scheme. It's one of the ones I use sage to keep the books on.
    The sales invoices get processed as normal, with 17.5% vat showing on them.
    The purchase invoices are all entered gross (I've been entering them with the T9 code, someone please correct me if that's wrong!)
    When it comes to filing VAT returns I print out the sales day book (and credit notes as well of course) for the period and work out the VAT manually.
    I then enter a payment from the bank account and post it to an expense account set up called 'VAT expense'.
    To be honest I'm not sure how the accountant deals with it from there - it's the first time he's dealing with it & we just discussed it together and came up with that method. I presume he'll take the output VAT from the VAT control account and add it back to the sales account, and apparently the VAT expense can be shown either as a deduction to your turnover, or as an expense in the accounts. I seem to remember the guidence on that being along the lines of 'strictly speaking VAT paid should be deducted from turnover, although in practice it's more likely to be shown as a cost'.

    As I say, this is just what I do, I'd like to hear what everyone else does too!

    Jodie
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Ah ha! Thats exactly right!

    As you say the control account will always not balance and the difference being on the credit side... i.e additional output tax to be paid... which with the VAT flat rate argeement will obviously never be paid so it is effectively additional income... so at year end it is added back to sales!

    Thank you for that. :)

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Did I get something right for once?? :lol:
    that's cheered up my rubbish day!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Hello, very interested in your comments on this. One of my clients operates the FRS and we put the exp. into Sage net, the balancing figure at the year-end is either an additional profit or expense.
    The vat control account has journals from the input/output and payments to HMCE leaving the balancing figure ((profit)/loss). Is this similar to your treatment?
    Does anybody know where a book on accounting treatments can be procured? As I also have questions on Cessation.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    You will always get a profit! i.e you charge 17.5% yet only pay across say 10% so you are left with 7.5% that gets added back to sales.

    Regards

    Dean

    p.s what did you want to know about cessation
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Hello Dean, if you take into account the input VAT you could make a loss. This is the reasoning behind putting the purchases in net; this should let you know if the FRS is profitable compared to the Std.

    Am I understanding this correctly?

    I have not done a set of cessation accounts before and am having trouble getting my head around the balance sheet/timing.
    The final balance sheet should show no debtors no creditors and a zero bank bal etc. However, as at the 28/2/06 when he cessed he still had creditors and debtors, what to do?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    I see where you're coming from with putting the purchases in net, but 99% of my client's purchases are at the std rate, so it's fairly simply to work out whether it's worth being on the scheme or not. In fact just yesterday I worked it out and the answer was no, he'd be better off coming off the scheme!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    I have yet to find a client who is worthwhile being on the scheme - if it really was that much of an advantage then HMRC wouldn't be pushing it quite so hard - me cynical never :D

    The only advantage that I can see is that I presume it negates having a VAT inspection :wink:

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    i think that it's probably easier for someone who's going their books manually themselves, but if their turnover's over £60k you would have thought they could afford an accountant!
    and it's just a hassle for us constantly having to review the situation to see if it's worthwhile.
    that's my morning whinge over with, make me go and do some work!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Yes - but once you have changed over you have to stay there for (I think) 3 years, and if it is not worth it with 1st year 1% discount then when will it be?

    Also do us out of work :lol:

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    You worried me there! I'd thought you had to stay in the scheme for one year, but i've checked the website & it says you can leave at any time, but preferably at the end of a vat period.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    Sorry Jodie - should have checked my notes first :oops:

    You have to notify HMRC if you leave the scheme, and once left you have to stay out for a year.

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    not to worry, it's exactly the kind of thing i get wrong all to often. it's just ironic that it was yesterday i said to this bloke that he should come off the scheme and i hate having to go back & say i've got it wrong!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT - Flat Rate Scheme

    When your on the Flat rate scheme you don't put your costs in net they go in the P & L gross this is to offset some of the additional profit...

    All that happens is you invoice at the standard rate... calculate the total of your gross sales for the period times it by your agreed percentage.... that is your VAT liability.

    OUTPUT tax with some as a credit on the balance sheet which is jnl'd out to make the vat zero and the other entry goes to sales.

    Expenses go in gross to offset the above.

    Regards

    Dean

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