Flat Rate VAT - bookeeping

Flat Rate VAT - bookeeping

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Good afternoon

I hope you can help.

My client has recently moved to flat rate VAT and essentially has an effective income benefit of 5.6% on net turnover.

I do not know how to account for this in the books given that this concession is there and you cannot claim VAT on expenses, is it simply DR Vat Account - Flat Rate Gain CR Bank ?

for example £22,000 net = vat charged £4,400, Vat paid over to revenue £3,168 but no claim of vat on expenses

Many thanks in advance.

 f

Replies (6)

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By TaxAngel
07th Jan 2016 15:03

Post all invoices (and expenses) at VAT inclusive amount

If on Flat Rate Scheme you need to post all invoices at gross amount and ignore the VAT.  Eg Invoice £3K, VAT £600, turnover/invoices issued figure will be £3,600.

Do the same for expenses - simply post the VAT-inclusive amount.  The VAT paid to HMRC can then be deducted as a business expense or netted off against turnover.  I prefer the latter approach as it more fairly states the business turnover in my view.

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RLI
By lionofludesch
07th Jan 2016 15:42

FRS 102/105

If you're a company, you won't be allowed to overstate turnover in the way TaxAngel suggests once you adopt the new FRSs.

You must start with the real turnover, net of VAT.   You will end up with a VAT credit which will be "Other business income". Not turnover.

If you're not a company, I'm still very much against overstating turnover by including all or part of the VAT.  It's a key business statistic and shouldn't be buggered about with.

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By petersaxton
07th Jan 2016 16:11

FRS 102 29.20

"Turnover shown in profit or loss shall exclude VAT and other similar sales taxes on taxable outputs and VAT imputed under the flat rate VAT scheme. Expenses shall exclude recoverable VAT and other similar recoverable sales taxes. Irrecoverable VAT allocable to fixed assets and to other items disclosed separately in the financial statements shall be included in their cost where practicable and material."

So for companies the very reason HMRC introduced flat rate VAT is not usable?

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RLI
By lionofludesch
07th Jan 2016 16:26

Madness

As far as expenses go, madness, I agree.  But the FRSs aren't an exclusively UK product, are they ?  It may actually not be quite so bad as you think, given that the FRS only applies to the published P+L.

I do have a couple of clients who like to keep an eye on their VAT payments by the traditional method as they are marginal cases.

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blue sheep
By NH
07th Jan 2016 16:44

as a matter of interest

I know to some technical boffins this might seem daft, but what exactly would happen if a company carried on reporting gross as they always have?

The FRS police are not going to knock on the door are they, HMRC aren't bothered as the net result is the same, do Co House even look at the accounts?

Remember those using flat rate VAT are small companies, not likely to have many shareholders, so why change?

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Replying to Arcadia:
RLI
By lionofludesch
07th Jan 2016 17:05

Rebel

petersaxton wrote:

NH wrote:

I know to some technical boffins this might seem daft, but what exactly would happen if a company carried on reporting gross as they always have?

The FRS police are not going to knock on the door are they, HMRC aren't bothered as the net result is the same, do Co House even look at the accounts?

Remember those using flat rate VAT are small companies, not likely to have many shareholders, so why change?

You're just a rebel!

<chuckle>

Presumably Companies House wouldn't know.  Seeing as you only have to file a Balance Sheet.

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