To prepare year end accounts for a business registered for FRS we need to use gross amounts for turnover and then include the flat rate VAT due as a deduction from the turnover figure. Alternatively the Flat rate VAT can be shown as a separate expense item within the Profit and Loss account.
I was wondering how Quickfile users deal with the above?
If you’re filing VAT returns in QF then an adjustment is automatically made each time you file a return to correct the difference between the standard rate of VAT vs the flat rate VAT.
It’s explained here, but that should keep your P&L and balance sheet accurate.
But for the year end sales should be gross and FRS VAT either deducted off this amount or shown as an expense.
With the adjustments I mentioned the P&L would be correct. VAT is a balance sheet item, it doesn’t appear on the P&L as an expense.
Let’s say an invoice is raised for £120 inc VAT:
£100 - on the P&L as NET sales.
£20 - on the balance sheet as output tax
Now the VAT Return is prepared, lets assume the FRS rate is 10%.
So 10% of £120 is paid to HMRC (£12), an adjustment is then applied by way of a journal to the original entries giving you:
£108 - on the P&L as NET sales.
£12 - on the balance sheet as output tax
So at the year end your P&L is NET of VAT and an accurate reflection of your sales total.
Hope that makes sense!
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