FRS VAT Calculations

Im on Flat Rate : 11.5%
Settings are set to flat rate and 11.5% is entered in the system.
My cash till entries into quickbooks are inclusive of VAT.

My understanding of this calculation are as follows:

1.Take the gross amount of any sum (items you sell or buy) – that is, the total including any VAT – and divide it by 111.5, if the VAT rate is 11.5 per cent. (If the rate is different, add 100 to the VAT percentage rate and divide by that number.)

    1. Multiply the result from Step 1 by 11.5 to arrive at the VAT element of the bill.

Using this calculation the Vat due on a gross figure of £351.00 (inclusive of 11.5% VAT) is 36.20

Quick file calculates the VAT due as £58,50 which is 20% VAT

The backing report shows £40.37 which is £351*11.5% (I assume an adjustment in going on).

If my prices are inclusive of VAT and my gross figure of £351.00 (Inc of VAT) as per FRS rules then surely the the correct return figure is £36.20

I’m sure you are all very bored with this topic but I need to get this right as it’s my first VAT return and I am only using software as my Return has to be digital.

The flat rate scheme doesn’t affect the vat you charge to your customers - that is still 20% of the net in the normal way (unless the things you’re selling attract a lower rate, like food at zero or tampons at 5%) - only what you declare on your VAT return and how much of the VAT you collected actually has to be handed over to the tax man. So it is correct that your individual invoices should say 20% VAT - your customers shouldn’t know or care that you’re using the flat rate scheme, they still see the 20% that they’re entitled to reclaim if they’re VAT registered and not on flat rate themselves.

The flat rate only takes effect at the point where you create a VAT return, where QuickFile calculates box 1 as 11.5% of the VAT-inclusive sales total for the quarter. The difference between the VAT you collected and the value declared in box 1 gets moved to the “flat rate adjustment” nominal by QuickFile to adjust your profit and loss appropriately.

No, you seem to be thinking in terms of the 11.5% flat rate being a proportion of the net value, but that’s not how it works. On flat rate what you pay HMRC is 11.5% of the gross sales total for the quarter including VAT, so on a sale of £351 including VAT (= £292.50 net + 58.50 VAT) the amount you pay to HMRC on that sale is £351 x 0.115 = £40.37.

3Hi Ian, yes I know the first paragraph . as for the second paragraph I still feel that the calc should return £36.20 which is the actual 11.5% Vat I have charged not £40.37 unless I’m being thick , if so give it to me thick style. Invoices are irrelevant to me, I take cash and card.

Are you saying I HAVE to charge my customers (cafe) 20% vat regardless ! and 11.5 % of that goes to the tax man

I assumed I Charged my customers 11.5% VAT and shipped it to the tax man. surely the 20% is optional ?

If you’re not actually giving proper VAT invoices to your customers then it doesn’t really matter how you record those sales in QuickFile as long as the gross total is correct - the calculation at VAT return time is always the same, 11.5% of the VAT inclusive total. But if you do issue any invoices or receipts that include a VAT breakdown then those must show the VAT as 20% (so one sixth of the VAT-inclusive total).

I think I’ll ring HMRC and get it from the horses mouth. £351.00 is a gross sales figure inc of vat . here is what i;ve been using as source.
Using Multiplication Method on a calculator

  • Multiply £50 by 11.5% result is VAT of £5.75.

  • Now, minus the £5.75 from £50 to get the payment amount excluding VAT - the result is £44.25.

  • So from the above we have concluded that the shirt cost £44.25 plus VAT of £5.75, totaling £50… but is this really correct?

Let’s test the calculations.

  • Multiply £44.25 by 11.5% - you would expect it to be £5.75 which is what we worked out above - but it isn’t. It’s £5.09.

The correct method is to divide the total payment by the VAT rate, but first the VAT rate (percentage) must be converted to a decimal.

Here is an article on how to do it

Using this Division method on a calculator

  1. First change the VAT percentage to a decimal - so 11.5% becomes 111.5 (11.5+100)

  2. Then divide £50 by 111.5 = 0.4484

  3. Multiply 0.4484 by 100 = £44.84 - this is the amount pre-VAT

  4. Multiply £44.84 by 11.5% to get the VAT amount £5.16

Maths always hurt my head Ian :

If you want to work it out by hand then if you have a gross total of £351 and you’re on flat rate of 11.5% then you will pay £40.37 of that £351 over to HMRC and keep the rest.

But if the customer asks you for a VAT invoice then you have to make one that says £292.50 net + £58.50 VAT @20% = £351 total.

QuickFile will handle this for you and apply a correction to your P&L when you submit the VAT return for the difference between the 58.50 and the 40.37.

Hi @Keepitsimple

What @ian_roberts mentions is correct.

You charge your customers the standard UK VAT rates of 0%, 5% or 20%, depending on the products or services.

From here you would take the gross figure (the total charged to your customer in this case, which would include VAT at the standard rates), and then you would pay the percentage of that.

To keep it simple, let’s say I’m selling a product for £83.33 plus 20% VAT = £100.00 gross. My customer would pay me £100.00 and their invoice or receipt would show 20% VAT.

Come the time of the return, I would pay HMRC 11.5% of the £100.00, which is calculated at Gross * (FRS Percentage / 100), so in this case:
£100.00 * (11.5 / 100)
= £11.50

To be clear - that “division method” you refer to would be what you would use in a case where you have a total amount including VAT, you know the rate of VAT that it includes (the percentage of the net that was added to reach the total you have in front of you) and you want to work out what that net was. But that’s not how FRS works - the flat rate percentage isn’t a VAT rate you apply to the net, it’s a percentage you apply to the final gross total.

I don’t invoice so I was merely thinking of adding 11.5% to my prices and that 11.5% is the VAT mans. Is my thinking wrong on this.

Sorry if this taking time to sink in , despite being well educated my brain goes into lock mode when maths goes beyond Basic !

so in effect as the figure is gross inc of VAT you are sort of adding it again ?

I think I understand , the calc I was doing is finding the VAT element of any figure ?

It was someone who worked in finance who gave me the calc , maybe we misunderstood each other

The way VAT normally works without the flat rate scheme is that you charge 20% VAT out to your customers on what you sell, but in return you are entitled to claim back any VAT you paid to your suppliers - this includes overheads like your energy bills, as well as the obvious stuff like the stock you bought to resell or the ingredients you’re using to make the meals you sell in your cafe (though many of those will be zero rated anyway). This offsetting means you don’t necessarily have to put your retail prices up by the full 20% when you become VAT registered as the cost to you of your inputs goes down.

The flat rate scheme is a layer on top of the standard rules, it doesn’t change the way you charge VAT, it’s simply an accounting arrangement between you and HMRC whereby they agree to let you hand over less of the sales VAT you collected but in return you give up the right to reclaim purchase VAT you have paid out to suppliers. The flat rate percentages are calculated for each business sector so that on average HMRC will receive about the same amount of money as they would if you were doing normal accounting with deduction of input tax - it’s not designed to save you money, it’s just designed to save you admin effort because

  • if you’re not issuing VAT receipts to your customers routinely then you no longer need to calculate the VAT amount accurately on every sale - you just have to record the VAT-inclusive total. You only have to break it down as net and (20%) VAT if a customer who is themselves VAT registered specifically requests a VAT invoice.
  • you don’t need to track the net and VAT amounts on your purchases, you only have to record the VAT-inclusive total
  • your VAT return becomes one simple calculation - box 6 is the total VAT inclusive sales for the quarter, box 1 is 11.5% of that. End of story (unless you have things like goods you’ve bought from elsewhere in the EU, which have to be accounted for separately)

The admin simplification is significant if you’re keeping your records on paper or in spreadsheets and doing the returns by hand, but once you’re using software like QuickFile it makes a lot less difference.

Given a flat rate of 11.5% the break even point for you would be to raise your pre-VAT-registration retail prices by about 13% and treat that new price as inclusive of VAT. If you were previously charging £1 for something you put the price up to £1.13, but now you have to give 11.5% of that £1.13 to the tax man. 11.5% of £1.13 is 13p so you get to keep the same £1 you used to and nothing else changes.

Another thought though - you describe your business as a “cafe” but if you do a significant take away trade then it would be worth taking some professional advice from an accountant on whether it’s better for you to stay on flat rate or whether you’d actually save money on standard accounting.

I say this because while you have to charge 20% VAT on all sit down meal sales and on hot food takeaway, cold takeaway food like sandwiches and (at least some) cakes can be zero rated. The flat rate scheme applies the 11.5% to all your sales including the zero rated ones, so if those make up a reasonable proportion of your turnover you may make significant savings by leaving flat rate.

Thanks for taking the time to explain this. I’m trying to get to grips with understanding the vat , evaluate software and cope with a new all singing and dancing till which has a manual written by a chimpanzee on LSD. Even the company who I bought the till from said " gosh don’t try and understand the manual , we wrote our own for support purposes" !

I think I’m clear now , my next step is to programme till to show the vat element of the transaction as 20% on any till receipts. I don’t issue receipts routinely as I’m not required to and it would only be necessary on the rare occaision someone wanted a VAT receipt.

Your other points about flat rate vs others does pan out for me as Take away is a small proportion of my business , with the exception of Ice creams (I;m a beach cafe) but they attract VAT regardless , but thank you for the pointer.

I’m trying to change prices by the bare minimum as It would make me uncompetitive and I’ve been a seasonal business up to this point and close for the winter. Now however I will be open to attempt to offset price increases. A seasonal business VAT rate would be a very welcome addition to the schemes.

Kind Regards.

Congratulations on having grown your business to the point where you are taking over £85,000 just in the summer season :wink:

Well the season is Easter to end of October really and then business drops off a cliff. It is a squirrels existence , make hay while the weather is good and hopefully see yourself through the lean winter Staff cost are high as in the holidays you need a lot of staff to run efficiently. The business of course is weather dependant and people don’t head to the beach much in winter ! Heaven forbid if we have a very rainy summer ! I’m going to have to get creative throughout the winter months.

It is satisfying to have built the business up , It was dead in the water when we took it on and had a bad reputation. However despite the fact that we make virtually everything ourselves , made with local produce and often organic to boot , including growing a lot of salad and veg ourselves some people still complain occasionally about prices as they are , so I’m sensitive about it. In reality they are comparing apples with oranges , wholesale , pre prepared food with homemade food which of course will come at a premium. Perhaps I’ll have to ignore it and accept that some people only think about a large portion of slop at cheap prices.

Anyway thank you for all your help , it’s very kind of you.

Kind regards

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I have exactly the same with my business - a small specialist retail grocery shop, we have no hope of competing with the supermarkets on price so we have to concentrate more on the intangibles like convenience, product range and staff expertise.

now see , I personally love those type of shops and they are more common as food culture has changed in the U.K. but there is a lingering problem with portion size and price which our continental cousins do not seem to share. Price of course is a consideration especially if you have a family, I have 3 kids (all grown up now) but two are unfortunately still on the payroll :roll_eyes:

I have been in a shop like yours and overheard something along the lines of " x amount for some ham, that’s outrageous " I sometimes feel like turning around and saying “No, its x amount for Iberico ham from rare pigs raised semi wild in oak forest feeding off acorns. Production cost is high.” You could of course go to the supermarket and buy some ham pumped full of sulphites and water , from pigs kept in pens where they cannot move or carry out there instinctive behaviours etc . Even free range doesn’t mean what people think it does. I think people like us have to stick to our principles , people can choose what they want to spend there money and we can choose what we supply , if we can make a living from it .

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