HOME / COMMUNITY Switch to knowledge base

Journal item 4999. Flat rate VAT adjustment

What is the Flat rate VAT sales adjustment (journal 4999) and what are the equations that calculate it?

I believe and others may correct me if I’m wrong. But that nominal will add the difference between normal sales vat and the flat rate percentage applied under the flat rate scheme.

What is the flat rateVAT sales adjustment? And how is it calculated? I am unable to download the “Flat rate VAT adjustment Guide”

Hi @davidhartley

I’ve merged your post into your existing thread. @Paul_Courtier answered the one part of your query.

There isn’t a guide for this. It’s done automatically when you run your VAT return.

When you’re on flat rate the VAT invoices you issue are still normal VAT invoices, with the net amount excluding VAT and the 20% (or whatever is the appropriate rate) VAT listed separately. When you issue an invoice QuickFile puts the net on your P&L under the relevant sales code (usually General Sales) and the VAT goes to your balance sheet in the Sales Tax Control account.

However when you submit your VAT return what you actually pay to HMRC is your flat rate percentage multiplied by the gross VAT-inclusive sales total for the quarter. QuickFile calculates the flat rate VAT that you owe based on your gross invoice totals and then adds an entry to 4999 for the difference between that number and the balance sheet VAT you collected on the same invoices.

For example, suppose you had just 3 invoices for the quarter, all at 20% VAT, for £100, £205 and £321 plus VAT, and suppose your flat rate is 10.5%. Prior to running your VAT return you will have

  • 100+205+321 = £626 on General Sales (P&L)
  • 20+41+64.20 = £125.20 on Sales Tax Control (balance sheet)

Your total gross sales for the quarter are 626+125.20 = £751.20, and the flat rate VAT you owe HMRC is 10.5% of 751.20 = £78.88 (rounded to the nearest penny).

So the VAT return process will create a journal that takes the £125.20 from sales tax control and splits it into £78.88 on VAT liability (this is what you’ll actually pay over to HMRC) and £46.62 of extra turnover on 4999. Now when you look at your P&L for the quarter you should see turnover of £672.62 (the 626 net General Sales plus the 46.62 adjustment) and your balance sheet will show that you owe £78.88 to HMRC.