Submitting my first MTD VAT return with any value.
I have 1 invoice for £14019.75 + 20% VAT £2803.95 = £16823.70
I am on the Flat Rate (Cash Basis) of 16.5%
£2803.95 @ 16.5% should be £2313.26 payable and £490.69 retained by me (if I am correct)
However, the system calculates VAT due @ £2775.91
I think my setting are correct as it says ‘Cash Accounting (Flat Rate @ 16.50%)’ at the top of the VAT submission and the invoice is set at 20% VAT.
Can’t figure out what I am doing wrong.
Box 6 has the full value of the invoice including the VAT
Hello @Drew_Mendoza
The flat rate is calculated using the gross.
When you drill down on box 1 you should see this message explaining the calculation.
@QFSteve
I see! Seems I may have been submitting my VAT incorrectly previously if it is to be calculated on the total. I always thought it was 16.5% based on the 20% charged to the client! So this is correct? Ouch!
Appreciate your reply.
Flat rate is calculated on the gross amount of the invoice (that is, the invoice total including VAT).
Just for clarity, if I raised an invoice for £100.00 + 20% VAT at 20% (£20.00), it brings the invoice to a gross total of £120.00. Under normal VAT rules, I would have to pay HMRC £20.00, subject to any reclaims on purchases, etc.
On flat rate, taking the rate of 16.5%, you pay 16.5% of the gross value. So, in this case - £120.00. Now, I owe HMRC £19.80 rather than £20.00, with the additional £0.20 being kept by the business.
£0.20 may not be a lot, but for businesses with a higher turnover, it quickly adds up. But, you’re not able to claim back VAT paid out on purchases (unless they meet a certain criteria).
That additional bit is a benefit of the flat rate scheme, but it doesn’t suit all businesses. We can’t advise on whether it’s best for your business or not, but it’s worth weighing up the pros and cons of it, or even discussing it with your accountant.
If this is the case, you may need to contact HMRC, depending on the value. Again, it may be worth discussing this with an accountant to be safe.
For reference, you can find information on VAT return errors on HMRC website: How to correct VAT errors and make adjustments or claims (VAT Notice 700/45) - GOV.UK
This is why they brought in the 16.5% “limited cost trader” thing in the first place - flat rates for many sectors were lower than that but businesses with very low input tax were at a competitive advantage on flat rate over the same sort of business on normal VAT. The 16.5% rate makes it marginal and in many cases you would be better off leaving flat rate and then being able to reclaim your input VAT - the old argument about FRS being significantly less admin no longer holds much water with everyone having to move to digital book keeping anyway for MTD.
1 Like
This topic was automatically closed 14 days after the last reply. New replies are no longer allowed.