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VAT - First Return

Just in the process of setting up to do first VAT return and am linked with HMRC. We are a B&B and operate under the flat rate of 10.5% vat. I changed this in the account setting but when I went to input the sales the vat options are 20%, 5% or no VAT.

How do I change this


You don’t change it - your invoices should still use the normal VAT rates. The flat rate scheme doesn’t affect how much VAT you charge your customers, only how much of what you collected has to be handed over to the tax man.

Thanks for your reply but I think you may have misunderstood what I am asking. I am entering the sales into the system so that the calculation for my return will be entered into the return but its at this point I am unable to change to flat rate - at present my vat payment would be calculated at 20% and not the flat rate?

You enter your sales at 20% as normal - the flat rate only applies when you do the return.

Suppose for the sake of simple numbers you’ve made £1,000 of net sales in a quarter plus 20% VAT. On normal VAT accounting your return tells HMRC “I’ve made £1,000 of sales (box 6) and I owe you £200 of VAT on those (box 1), minus whatever I’ve claimed back on purchases (box 4)”.

But on flat rate the return instead says “I’ve made £1,200 of VAT inclusive sales (box 6), and I owe you 10.5% of that total - £126 (box 1)”. The flat rate percentage applies to the gross total sales including VAT (at 20%), and reduces the amount you put in box 1, but in return you aren’t allowed to claim back VAT that you paid on purchases in box 4. QuickFile will adjust as part of the VAT return process to move the difference between the 20%-of-net that you charged your customers and the 10.5%-of-gross that you declared on your return back over to the “sales” section of your profit and loss report.

Any VAT invoices you give to your customers still say they were charged 20% VAT, and if they’re VAT registered (and not themselves on flat rate) they can reclaim that in the normal way.

Many thanks for your help


Note in particular that a 10.5% flat rate percentage is not the same thing as a 10.5% effective VAT rate on top of each net sale amount. The effective VAT rate on each sale is nearer 12.6% (10.5% of 120%), but won’t be exactly that due to rounding differences - the actual VAT is calculated and rounded to the nearest penny on each separate invoice but the flat rate is a one off calculation on the vat-inclusive total of all the invoices in a quarter.

I do think that now MTD is pushing everyone over to using software to track their records then there’s less and less need for the flat rate scheme at all these days. The scheme was designed to simplify record keeping for people like retailers who don’t routinely produce individual VAT invoices for each customer, as you can basically ignore VAT in your day to day records unless a particular customer asks for it, and just do one percentage calculation in the gross total once per quarter. But software makes it so much easier to track everything accurately it’s hardly any extra effort to do normal VAT accounting.

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