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VAT flat rate scheme

Just checking

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I've never dealt with the VAT flat rate scheme before.

With income of £1000+ 20% VAT = £1200 and flat rate of, say, 12%, the VAT to be reported in Box1 is 12/112 x 1200 =£128.57- and the income in Box 6 is £1200-£128.57 = £1071.43.   

Is that right or have I misunderstood?  It goes against the grain to report numbers that don't come directly from the accounting records.  

Presumably the 'windfall' gain on output tax is then part of the taxable profits of the business?

Replies (10)

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By Cloudcounter
11th Oct 2019 14:29

No. The output tax to be recorded is £1,200 @ 12% = £144. The income in box 6 is £1,200

Thanks (3)
RLI
By lionofludesch
11th Oct 2019 14:37

Don't know where you've got that from, Paul.

It's 12% of your gross sales inc VAT. Very straightforward.

Thanks (3)
Replying to lionofludesch:
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By paul.benny
11th Oct 2019 16:23

lionofludesch wrote:

Don't know where you've got that from, Paul.


Quite simply the wrong end of the stick.
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By Carolynne
11th Oct 2019 14:42

And don't forget in the first year of VAT registration there is a 1% discount off the flat rate you apply to your turnover, until the day before your first anniversary of becoming registered for VAT. So if the flat rate is 12% of £1,200, in the first year of VAT registration it will be 11% at £132.00, populating Box 1, 3 and 5 & as 'cloudcounter' says, £1,200 income going into Box 6 of the VAT return.

Thanks (1)
Caroline
By accountantccole
11th Oct 2019 14:46

Watch out for limited cost trader rules too

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By paul.benny
11th Oct 2019 16:26

Thank you all - appreciate the responses.

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Replying to paul.benny:
By cfield
14th Oct 2019 11:04

Not sure if you took that last comment on board. The low cost trader rules make it very difficult for most firms supplying services to use the flat rate scheme in an advantageous way. On the contrary, they are likely to lose out as they would pay £198 output tax for every £1,000 of income instead of £200 at the default rate of 16.5% but still not be able to recover any input tax.

Is your client spending at least 2% of their quarterly VAT turnover on "relevant goods" like stationery?

Of course, they'd still have the benefit of not needing to examine their expenses for qualifying input tax, but it's not really that hard, and anyway, that's meant to be their accountant's job.

Thanks (1)
Pile of Stones
By Beach Accountancy
14th Oct 2019 10:54

Quickfile has a line in the p&l showing the Flat Rate Sales Adjustment i.e. the "windfall" - hours of fun trying to explain that to clients...

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By Rgab1947
14th Oct 2019 12:21

Just another smoke and mirrors to be able to say "we did not increase tax" but in fact did.

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By Charlie Carne
14th Oct 2019 12:56

As per comments from accountantccole and cfield, what sort of trade is your client in? The limited cost trader rules are a little complex, but they mean that many (perhaps most) service businesses fall foul and no longer benefit from the Flat Rate Scheme (FRS); in reality, they would likely be very much worse off under the FRS. If you do not check this carefully, your client could suffer huge penalties. Do please let us know that your client sells goods or is otherwise unaffected by these rules.

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