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VT Transaction+

Navigation: Value Added Tax

Flat rate scheme

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See also: Flat rate scheme: Example

Introduction

Under the flat rate scheme, output VAT due to HMRC is based on a flat percentage of your VAT inclusive turnover. Input VAT cannot usually be reclaimed.

Please note the information in this article is for guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. For details of your obligations under the flat rate scheme please refer to HMRC VAT Notice 733.

Flat rate workaround

VT Transaction+ has no special support for the flat rate scheme and it does not generate a flat rate VAT return directly.

As a workaround you can enter transactions as described below and run a dummy VAT return in VT Transaction+, which will provide most of the information needed for the flat rate return. You can then manually create the flat rate return in Excel and submit it to HMRC using MTD for Excel.

Please note that this workaround should only be used if you have not made any transactions excluded from the flat rate scheme.

Entering sales

Under the flat rate scheme sales should be billed to customers at the normal rates of VAT (usually the standard rate), not the flat rate.

The VAT you then pay over to HMRC is calculated by multiplying the flat rate % by the VAT inclusive turnover (i.e. the value of sales including VAT you have billed to customers).

To calculate this in VT Transaction+:

Enter sales in the usual way (i.e. record the net amount of the sale, and enter any output VAT due at the normal rates, in the SIN, SIN or REC dialogs).

Determine your VAT inclusive turnover by generating a dummy VAT return for the VAT period. Make sure you save the return. The sum of boxes 1 and 6 should equal your VAT inclusive sales turnover, provided you have not made supplies excluded from the flat rate scheme).

Multiply your VAT inclusive turnover by the flat rate % to calculate the VAT due to HMRC under the flat rate scheme. You can then enter this figure in Box 1 of your flat rate return in Excel. To check you have calculated the flat rate VAT correctly, please refer to HMRC VAT Notice 733.

If you are using the cash based turnover method, ensure that all receipts of invoices previously entered have been matched off against the invoices before generating the dummy VAT return.

Entering purchases

Input VAT cannot be reclaimed on purchases under the flat rate scheme, so these purchases should be entered on VT Transaction+ as follows:

Enter purchases gross of VAT (using the PAY, CHQ or PIN buttons) and do not enter any VAT in the Input VAT field. This will ensure that amounts do not get recorded in the Creditors: Input VAT account.

Boxes 4 and 7 of the flat rate return should normally be zero, provided you have not made purchases excluded from the flat rate scheme. If you have only made purchases covered by the flat rate scheme, you can simply enter zero in boxes 4. and 7. when preparing your flat rate return manually.

VAT journal

You also need to enter a journal in VT Transaction+ to account for the difference between the actual output VAT due under the flat rate scheme and the figure currently shown in the Net VAT due account.

For this you will need to create a Flat rate VAT account in the income ledger and enter a journal for the difference using the JRN transaction as follows:

If the amount in Net VAT due is more than the actual flat rate VAT due:

Debit: Net VAT due
Credit: Flat rate VAT

If the amount in Net VAT due is less than the actual flat rate VAT due:

Debit: Flat rate VAT
Credit: Net VAT due

Transactions excluded from the flat rate scheme

The workaround above does not cover accounting for VAT due on transactions excluded from the flat rate scheme. These include amongst others:

Services from abroad subject to reverse charge VAT

Construction services subject to domestic reverse charge VAT

You should refer to HMRC VAT Notice 733 for details of items excluded from the flat rate scheme. If you also make such transactions, this workaround should not be performed and you should calculate the figures for your VAT return manually.