VAT exempt invoice included in VAT return

[lindley]

I have an invoice which has no VAT applied to the amount
I’m using Flat Rate Scheme and Cash Accounting
VAT field 1 total includes an amount as though the invoice did have VAT included in it’s total

Any ideas?

[lindley]

I’ve found that I can set the client to be “Exempt or out of scope for VAT purpose”, and then do the same to the invoice. Problem solved.

[ian_roberts]

@lindley

I have an invoice which has no VAT applied to the amount
I’m using Flat Rate Scheme and Cash Accounting
VAT field 1 total includes an amount as though the invoice did have VAT included in it’s total

This is as it should be, your flat rate turnover is supposed to include all your zero-rated and exempt sales as well as your VATable ones - the flat rate percentages for each business type are set to take this into account, considering the typical gross margin and split of 20%/5%/0% sales for that sector, but if your specific business has a different split that is not typical for your sector then you may find you end up paying more on flat rate than you would on normal VAT accounting.

I’m a food & confectionery retailer and my case is an extreme one - I’d have paid more than double the amount of VAT for my last quarter if I were on the flat rate scheme compared with what I actually paid on normal VAT accounting.

VAT notice 733 section 6.2
Your flat rate turnover is all the supplies your business makes, including VAT. This means all of the following:

• the VAT inclusive sales and takings for standard rate, zero rate and reduced rate supplies
• the value of exempt income, such as any rent or lottery commission – these examples are not exhaustive and you can find out more about exempt income in VAT guide (VAT Notice 700)

[…]
As exempt and zero rate supplies are included in your flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme if these supplies are a larger proportion of your business turnover than the average for your trade sector.

[lindley]

Hi Ian, thanks for pointing that out.