Hello, I wonder whether anyone can help a newbie here…
- I’m set up for Flat Rate VAT of 14%, Cash Accounting, using Version 1.0.
- As I’m in my first year of trading I can actually run at 13%.
- It is my understanding that to achieve this, rather than setting up as 13% in the Company Settings (VAT Settings sub-page), I have to manually adjust my VAT submissions each of the four quarters of my first year.
In my first quarter, there was one invoice for £2,054 +20% VAT = £2,464.80.
My VAT Return shows “Flat rate turnover inc VAT” of £2,465 and above “VAT due on sales and other outputs” of £320.42 and “Adjustments” of MINUS £24.65.
This all makes sense to me so far as 14% would have been VAT payable to HMRC of £345.07. The MINUS £24.65 takes it down to £320.42 which is the 13% equivalent.
So far so good… I think!
HOWEVER:
If I look at my Balance Sheet the Liabilities section shows:
- 2202 VAT Liability = £320.42 (fine)
- 2204 Manual Adjustments = £24.65 (?!)
If the £24.65 represents another 1% freebie from HMRC (effectively profit), why is it showing as a Liability rather than an Asset? I’m fine with 2202 being there; I owe HMRC the 13% £320.42…but I don’t owe the 1% £24.65 so surely it can’t similarly be treated as a Liability…?!
I’m SURE it will turn out that the system is working perfectly but I really would love to understand why this, on the face of it, is so illogical…
I attach the Manual Adjustment’s VAT Journal screen which shows the whole picture.
Many thanks in advance for your patience and anticipated helpful explanations…