They are, but only at the end of a quarter once you have submitted the VAT return.
When you submit your VAT return in QuickFile it calculates the difference between the amount of VAT you collected in the quarter and the amount that you owe according to the flat rate calculation, and moves that to the “flat rate adjustment” nominal under the sales section (as a credit increasing your income if you owe HMRC less than you collected, as a debit decreasing it if you owe more - e.g. if you have a larger than usual value of zero rated sales). At that point your P&L up to the end date of that VAT quarter will be accurate.
Hi,
I ran a VAT return and downloaded a CSV file , no mention of it there. Are you saying that the journal is created when a bona fide return is filed ?
Ian, All sales are covered under flat rate , no zero etc. My turnover as we know is inclusive of VAT charged and VAT is a very simple calculation of *11.5% to determine VAT due . This we know. The calculations Quickfile is performing is to adjust 20% down to 11.5% correct ? and from what you and Matthew are saying the difference is reflected as a credit to the sales account ? Is this reflected in the sales and P&L to adjust income and also the trial balance . If I have understood this correctly my only way of keeping tabs on actual VAT paid would be these credits ?
Gosh this is a painful way of communicating:roll_eyes:
Pretty much, yes. Suppose for the sake of a simple example that you had recorded gross sales of £12,000 in a given quarter (as £10,000 net plus £2,000 VAT). This would show on your P&L as £10,000 general sales and on your balance sheet as £2,000 sales tax control. When you submit your VAT return it calculates that you owe £1,380 VAT to HMRC (11.5% of £12,000), so it creates a journal that does
debit £2,000 sales tax control
credit £1,380 VAT liability
credit £620 flat rate adjustment (4999)
If you now look at your P&L for the quarter it’ll show £10,000 general sales plus £620 FR adjustment, giving a turnover total of £10,620, and your balance sheet at the quarter end date will show £1,380 VAT liability that will be cancelled out when HMRC take the direct debit.
Right ok, so the above does this is and credits back to (Sales) 4999 does it actually show as a credit in the sales screen or simply added back in to turnover ?
debit £2,000 sales tax control - ok so takes the initial 20%
credit £1,380 VAT liability - credits the actual VAT back
The above does this
2200 Trial balance Sales Tax Control Account shows at 20%
Then Actual VAT liability replaces the 20% figure
And 2200 Balance sheet also shows the actual VAT
but all these figures only come correct after quarterly return.
I ask because the difference between the figures in your example (£620.00) is obviously income and will be reported as such . It would be nice if an actual entry is made as it would enable the user to gauge whether flat rate is working for them .
As you are aware for reporting purposes VAT of course is neither income nor an expense. Lots of accountants list it as an expense for ease of understanding of their clients or separate it out in notes on the account and I needed to know how Quickfile handled it.
HMRC give the following example
Example
A business has gross sales of £84,000 (including output VAT at 20% of £14,000), and expenses of £48,750 (including irrecoverable VAT). The flat rate VAT @ 6% is £5,040.
The accounts will show:
Turnover
£78,960
(£84,000 less £5,040 flat rate VAT)
Expenses
£48,750
Profit
£30,210
This of course reduces the turnover by flat rate and leaves the “difference” in turnover , This however does not enable at a glance assessment of benefit derived from being on the scheme.
Once again hope that makes sense and thank you for your patience Ian.
Where exactly do you mean by the “sales screen”? The “show all sales” list by default gives you the invoice totals including VAT, so even on normal VAT accounting you have to use the P&L report to see your position net of VAT.
In your specific case, if you are just using QuickFile to record your retail sales and you aren’t actually providing VAT invoices directly out of QuickFile to your customers (I believe this is the case from what you’ve said previously about operating a cafe with an electronic till), then you could minimise the amount of the 4999 adjustment by setting up a custom VAT rate of 13% under “additional sales VAT rates” in advanced settings.
If you record your gross retail sales as if they were inclusive of 13% VAT (e.g. instead of recording gross takings of £1200 as being £1000 net plus £200 VAT @ 20%, record it as £1061.95 net plus £138.05 VAT @ 13%), then your “general sales” on P&L should be approximately correct for a flat rate of 11.5% - the adjustment that QuickFile has to make on 4999 when you do a VAT return should be no more than a few pounds per quarter. This works because 11.5% of gross is equivalent to fractionally under 13% of net, and the adjustment ends up mostly just being the rounding error between the 13% calculation done on each invoice individually vs the 11.5% flat rate percentage calculated on the overall gross total for the quarter.
Thank you once again , Ok so the turnover question is sorted. And possibly your custom VAT solution is the answer, if I’m allowed to do that.
I’m wondering if I’m making a basic misunderstanding. HMRC state that you keep the difference between the VAT you charge and the flat rate you pay to HMRC. I’ve assumed that HMRC are saying between 11.5% and 20% . In other words for accounting purposes you are charging 20% . I have assumed this from the fact that my till receipt (invoice) must show 20% if requested. And that quick files defacto rate is 20%. From what your saying this is not the case.
This is important because :
I can’t possibly actually charge 20% as my prices would be to high
The difference between 11.5% and 20% would be credited back to turnover and if I haven’t actually added 20% to my prices then i’m out of pocket.
Maybe I should ask my accountant , I’m somewhat reluctant as he misinformed me about obligations under MTD , I’m looking for another at present
Well it looks like the flat scheme requires you charge standard VAT @20%/ hmm so there’s a conundrum for me. I have to find the sweet spot for what I actually charge which benefits me most . 20% is a definite no no
You have to itemise it as 20% VAT on your VAT invoices but that doesn’t necessarily mean you have to put your prices up by the full 20% - on standard VAT your inputs become cheaper because you can offset the VAT you paid to your suppliers against that which you collected from your customers so the effective cost to you of your inputs goes down. This effect is one of the reasons why they set different flat rates for different business types - some businesses have more deductible input tax than others on average.
As a cafe you’re unfortunately one of the worst hit by VAT registration since many of your inputs (your ingredients) are zero rated but you have to charge 20% on your outputs (food supplied in the course of catering is all 20% even if the same items would be 0% if supplied retail to take away). For you I guess it’s only confectionery, ice cream and soft drinks where you do pay VAT, plus your other overheads like energy bills.
It’s actually between 11.5% and 16.67%, because VAT is 20% (one fifth) of the net which is 16.67% (one sixth) of the gross. If the vat you would be eligible to reclaim on your purchases amounts to more than 5% of your gross turnover then you may be better off not using the flat rate scheme.
Hi Ian,
I was really talking about HMRC’s view point, in their view I charge standard 20% regardless of what I actually charge. This means the difference is credited to taxable turnover .If I cannot charge 20% then I somehow have to settle on a figure which offsets the increase in turnover (that I haven’t had. Either that or buy a bloody expensive oven to keep it out the taxmnans hands
Like I said on your previous thread, if you’re working on a flat rate of 11.5% of gross then you’d have to increase your retail prices by 13% to maintain the same gross profit percentage you have now.
Again I think you’re overcomplicating things and mixing up the “VAT rate” which is a percentage of the net excluding VAT, and the “flat rate percentage” which is a percentage of the total including VAT. The actual situation is more like this:
Scenario
total takings
FR VAT owed (11.5% of prev column)
Amount you keep (i.e. your turnover)
% change
Current (not VAT reg)
100,000
nil
100,000
n/a
Keep current prices
100,000
11,500
88,500
↓11.5%
Increase prices by 5%
105,000
12,075
92,925
↓7.075%
Increase prices by 10%
110,000
12,650
97,350
↓2.65%
Increase prices by 13%
113,000
12,995
100,005
↑0.005%
For the purpose of this modelling you don’t need to care about the 20% VAT rate - yes, this is how you have to record those prices on a VAT invoice, but for modelling the effect on your GP% when you’re operating on flat rate VAT all you care about is the overall gross total (and of course these numbers all assume the higher prices don’t result in fewer sales, which is in itself somewhat unrealistic).
The sweet spot is a business decision for you, to balance how far you can increase your prices without driving away customers vs how many percentage points you can afford to knock off your gross margin and still remain a viable business.
Either I’m as thick as a whale omelette (regarding maths ,most likely true) or we are getting to the crux of the matter… From what I’ve read I do indeed need to worry about the 20% as stated before the difference between what I charge and 20/% gets credited back to my turnover (quickfile does this ) The above does not reflect this. anyway I’ve probably wasted enough of your time, i’m sure it’s my misunderstanding. I’ll digest the above and it may percolate through my synapses that mathmatically challenged . It’s lucky I cook a good meal and run a good business as a career in the money markets though I’m probably qualified to be the chancellor of the exchequer !
is that if you make a sale for £11.30 and the customer asks you for a VAT receipt then you have to show it on that receipt as £9.41 net plus £1.89 VAT @ 20%, but for your own turnover calculations you’re just paying HMRC 11.5% of the £11.30 (= £1.30) and keeping the rest yourself (£10).
The fact that QuickFile represents this as a split between 4000 and 4999 is something of an implementation detail, for forecasting it’s the final “total turnover” line on the P&L that you care about and that is only dependent on the total retail price to the customers and the 11.5% flat rate.
Obviously, there was more to the problem than met my eye.
I have to say that the whole QuickFile internal adjustment thing is probably competent but tricky as well. I do wonder how a receiver of keepitsimple receipt ( incl VAT at 20% ) might then, for his/her own purposes, have to adjust it thereafter
However, trying to recall the above thread, and speaking as a non accountant of course, is it not as simple as “go into advanced settings” and simply implement 11.5% as the VAT rate that you use and make sure gross and net accurately reflect that at either / both detail and overall levels?
They wouldn’t - as far as they’re concerned KIS has charged them inclusive of 20% VAT and that’s what they’re entitled to reclaim on their own VAT return if they are VAT registered (unless they are also on flat rate, of course, in which case they treat the whole VAT inclusive total as an expense just like KIS would with their own suppliers).
My suggestion in the other thread was that if you’re not giving QuickFile invoices out to your customers then recording your totals in QuickFile as if they were inclusive of 13% VAT (not 11.5) would mean the flat rate adjustment that happens at VAT return time would be near zero and the P&L report would be closer to reality at all times, not just when you have completed a VAT return to make the 4999 adjustment.
Hi Ian ,
With fear of getting us all chasing our tails again
I don’t think this is possible (or at least very confusing) in HMRC’s eyes my transactions whether by invoice or cash are inclusive of 20% VAT. maybe that is where the confusion lays.
f you use the VAT Flat Rate Scheme – Your day-to-day processing remains unchanged and VAT calculates at the standard, lower, exempt, zero rated and No VAT rates as normal. The flat rate percentage applies when you calculate your VAT Return. The amount of VAT you pay to HMRCcalculates as a percentage of your gross turnover, this includes all sales including those which are Zero Rated and Exempt transactions.
You can choose to use either the invoice or cash-based VAT Flat Rate Scheme. If you choose invoice-based, the VAT calculates at the point of invoicing. If you choose cash-based, it calculates at the point of payment.
The difference between 11.5 % and 20% is credited back to turnover and as my accountant has stated (sorry for caps)
IT WILL BE ADDITIONAL TURNOVER, MAY BE DISCLOSED SEPARATELY UNDER FLAT RATE MARGIN INCOME BUT IN ESSENCE IS ADDITIONAL TURNOVER WHICH IS TAXABLE INCOME
Still digesting your other post where you kindly laid out some figures
