| | UK Flat Rate VAT Scheme - Cash Based |
| Description | The Flat Rate VAT scheme (FRS) offers small businesses an alternative to the normal transaction-based method of VAT accounting. Flat Rate VAT is calculated as a percentage of your total turnover. The percentage value is from what's entered in your company preferences and this is applied to Box 1 on your VAT Return. For further information about VAT, refer to the HM Revenue & Customs (HMRC) website at www.hmrc.gov.uk |
| Resolution | The VAT Return If you haven't already started your VAT Return, you can find out everything you need to know in our Help Centre.
Processing transactions Most transactions can be processed using the usual nominal and tax codes. However, there is one exception: Exceptions for capital assets Under the Flat Rate Scheme, the purchase of capital assets costing more than £2,000 including VAT, where VAT is recovered, should be recorded with a T25 tax code. When such assets are sold, full VAT should be declared and therefore the T25 tax code should be used on the sale as well. If VAT isn't recovered on the purchase then the normal tax codes apply, for example, T1 for a standard rated sale. For further information about the purchase and sale of capital assets under the Flat Rate VAT scheme, please refer to HMRC. Disposing of a capital asset and reclaiming VAT at the standard VAT rate of 20%
Using the Fixed Asset Register
Use the Disposal option in the fixed asset register using the tax code T25. Read more >  NOTE: Do not use T1, if you do, the VAT appears on you VAT Return for both standard rate and flat rate.
To post the entries manually These steps are based on the following example: - A vehicle which was originally purchased for £2,000
- Depreciation to date is £116.69
- The asset is sold for £1,200
- Click Nominal codes then click Journal entry.
- Enter a reference, date and the following journals.
To transfer the original purchase price from the asset nominal code, post the following: | N/C | Name | Details | T/C | Debit | Credit | | 0050 | Motor Vehicle | Disposal | T9 | | 2,000.00 | | 4200 | Sales of Assets | Disposal | T9 | 2,000.00 | |
To transfer the accumulated depreciation to date, post the following: | N/C | Name | Details | T/C | Debit | Credit | | 0051 | Motor Vehicle Depreciation | Disposal | T9 | 116.69 | | | 4200 | Sales of Assets | Disposal | T9 | | 116.69 | - Click Save then click Close.
- To record the proceeds from the sale, click Bank accounts then click Bank receipt and enter the following details:
| Bank | Date | Ref | N/C | Details | Net | T/C | Tax | | 1200 | Date of the disposal | Disposal | 4200 | Disposal of asset | 1000 | T25 | 200 | - Click Save then click Close.
You've now posted the entries to record the disposal of the asset. When running your VAT Return, £200 will appear in Box 1 and £1,000 in Box 6. Disposing of a capital asset but only reclaiming VAT at the flat rate When disposing of an asset, if you only want to reclaim VAT at the flat rate, you should post the journals manually. NOTE: Do not use Fixed asset register, if you do, the VAT appears on you VAT Return for both standard rate and flat rate. These steps are based on the following example: - A vehicle which was originally purchased for £2,000
- Depreciation to date is £116.69
- The asset is sold for £1,200
- Click Nominal codes then click Journal entry.
- Enter a reference, date and the following journals.
To transfer the original purchase price from the asset nominal code, post the following: | N/C | Name | Details | T/C | Debit | Credit | | 0050 | Motor Vehicle | Disposal | T9 | | 2,000.00 | | 4200 | Sales of Assets | Disposal | T9 | 2,000.00 | |
To transfer the accumulated depreciation to date, post the following: | N/C | Name | Details | T/C | Debit | Credit | | 0051 | Motor Vehicle Depreciation | Disposal | T9 | 116.69 | | | 4200 | Sales of Assets | Disposal | T9 | | 116.69 | - Click Save then click Close.
- To record the proceeds from the sale, Bank accounts > Bank receipt > enter the following details:
| Bank | Date | Ref | N/C | Details | Net | T/C | Tax | | 1200 | Date of the disposal | Disposal | 4200 | Disposal of asset | 1000 | T1 | 200 | - Click Save then click Close.
You've now posted the entries to record the disposal of the asset. When running your VAT Return, £60 will appear in Box 1 and £1,000 in Box 6.
How the VAT Return calculates | Box | Details | Sales | Purchases | | 1 | VAT due under the flat rate scheme plus any VAT from the sale of capital goods on which you have claimed input tax separately while using the flat rate scheme. | Turnover from box 6 x flat rate %
Plus VAT on sales of assets outside scheme (T12) | T15, T17, T18, T20 and T24 | | 2 | VAT on any goods purchased from other EC Member States. | N/A | T8 | | 3 | Total VAT due, therefore the total of boxes 1 and 2. | N/A | N/A | | 4 | Usually £0.00 unless if you make a single purchase of capital expenditure goods of more than £2000 in value (inc VAT). | N/A | VAT on purchase of assets outside scheme (T25) + VAT on T15, T17, T20 & T24 transactions. | | 5 | Net amount of VAT to be paid to HMRC or reclaimed by you. | N/A | N/A | | 6 | VAT inclusive turnover for period plus value of any sale of assets outside the scheme. | Turnover T0, T1 (Gross), T2, T4, T5, T15 (Gross) Non turnover T20 and T22 Asset sales
Net value of sales of assets originally purchased outside of scheme (T25) | Non Turnover T23 and T24 | | 7 | Usually 0.00 unless you made a single purchase of capital expenditure goods costing more than £2,000 (including VAT) and you are claiming the input tax in box 4 or you have any EC Purchases. | N/A | T7, T8, T15, T16, T17, T20, T23 and T24 | | 8 | Total Value of EC sales, excluding VAT. | T4
Plus Net value of sales of assets outside of scheme | N/A | | 9 | Total Value of EC purchases, excluding VAT. | N/A | T7 and T8 | Confirm the figures on the VAT Return Once you have calculated your VAT Return, you can click the value you would like to see a breakdown of. If you'd like to see the included transaction then double-click the value. You can then use the reports to confirm the figures in each of the boxes on the VAT Return. View reports > Run the following reports and note the figures as outlined below: | Report name | Report location | Figures to note | Letters for calculation | | Flat Rate Day Books Customer Receipts (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Customers | Flat Rate Tax Total | A | | Gross Amount less any VAT with a T25 tax code | B | | Day Books Customer Refunds (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Customers | Flat Rate Tax Total | C | | Gross Amount less any VAT with a T25 tax code | D | | Flat Rate Day Books: Supplier Payments (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Suppliers | Flat Rate Tax Total | E | | Net Amount for tax codes T7, T8, T20, T23, T24 and T25 | F | | Day Books Supplier Refunds (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Suppliers | Flat Rate Tax Total | G | | Net Amount for tax codes T20 and T25 | H | | Flat Rate Day Books: Bank Receipts (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank. | Flat Rate Tax Total | I | | Gross Amount less any VAT with a T25 tax code | J | | Flat Rate Day Books: Cash Receipts (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank. | Flat Rate Tax Total | K | | Gross Amount less any VAT with a T25 tax code | L | | Flat Rate Day Books: Credit Card Receipts (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank.
| Flat Rate Tax Total | M | | Gross Amount less any VAT with a T25 tax code | N | Flat Rate Day Books: Bank Payments (Detailed)
| Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank.
| Flat Rate Tax Total | O | | Net Amount for tax codes T7, T8, T20, T23, T24 and T25 | P | Flat Rate Day Books: Cash Payments (Detailed)
| Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank.
| Flat Rate Tax Total | Q | | Net Amount for tax codes T7, T8, T20, T23, T24 and T25 | R | | Flat Rate Day Books: Credit Card Payments (Detailed) | Reconcilation reports > Reconciliation reports > Flat rate - cash based > Bank.
| Flat Rate Tax Total | S | | Net Amount for tax codes T7, T8, T20, T23, T24 and T25 | T |
Flat Rate Day Books: Nominal Ledger
| Reconcilation reports > Reconciliation reports > Flat rate - cash based > Nominals. NOTE: If you use the Flat Rate VAT scheme you shouldn't post journals with a tax code which is included on the VAT Return as this causes boxes 1 and 4 to be incorrect. For more information about this, please refer to this guide > | Total Values of the Flat Rate Tax Column (Credit) | U | | Total Value of the Flat Rate VAT Column (Debit) | V | | Total of Credit column less any values posted to Sales tax (2200) or Purchase tax (2201) control. | W | | Total of Debit column for the following tax codes: T7, T8, T20, T23, T24, T25. | X | | Customer EC Sales Activity | Customers > Reports > EC Sales Reports | Total Debits less total Credits | Y | | IOSS Transactions (Detailed) | VAT > OSS IOSS transactions | The net element of the transactions for goods.
You must add the Net total for each tax code used for goods to get the full Net element.  CAUTION: There is an issue with this report when using Flat Rate VAT schemes. The SI's show as negative when they should be positive, and the SC's show as postive when they should be negative.
| IOSS | Click the relevant box below to see which reports you need to run to confirm the values are correct. Box 1 This figure represents the VAT due in this period on sales including capital items on which purchase tax has been reclaimed. Using the totals from the reports you've run, Box 1 = (A - C) + I + K + M + U To see your Box 1 figure broken down by tax code and transaction type, click the figure. To see a further transactional breakdown of any of these figures, double-click the figure. Why the figures may not agree: - Manual adjustments may have been posted. To investigate this further > Make adjustments. For further information about manual adjustments, please refer to this guide >
- A VAT element has been included in a sales transaction with a tax code that hasn't been included in the VAT Return. To check if a tax code is included in the VAT Return, open Settings > Configuration > Tax Codes. Select the tax code you're investigating > Edit. If the Include in VAT Return check box is cleared, transactions using this code aren't included in the VAT Return.
- Different date ranges have been used when comparing the reports to the VAT Return.
- Unreconciled transactions from before the specified period have been included in the VAT Return, but not the Day Book reports.
- Reverse Charge VAT has been posted using Tax Code T20 or T24. This could affect purchase invoice, purchase credit, bank payment, visa payment or cash payment transactions.
- Customer refunds posted on a T4 tax code.
Box 2 This figure represents the VAT due in this period on EC Acquisitions. The figure in Box 2 is the notional VAT calculated on T8 transactions when T8 is linked to T1. This figure is calculated by multiplying the value of your T8 transactions by the Standard rate of VAT. To see your Box 2 figure broken down by tax code and transaction type, click the figure. To see a further transactional breakdown of any of these figures, double-click the figure.
NOTE: If you want a report to show these transactions with the notional VAT calculated, please contact Sage Technical Support. Box 3 This figure represents the total VAT due. Box 3 is the sum of Box 1 and Box 2. Box 4 This figure represents the VAT reclaimed in this period on purchases. Using the totals from the reports you've run, Box 4 = (E - G) + O + Q + S + V Why the figures may not agree: - Manual adjustments may have been posted. To investigate this further > Make adjustments. For further information about manual adjustments, please refer to this guide >
- A VAT element has been included in a purchase transaction with a tax code that hasn't been included in the VAT Return. To check if a tax code is included in the VAT Return open Settings > Configuration > Tax Codes. Select the tax code you're investigating > Edit. If the Include in VAT Return check box is cleared, transactions using this code aren't included in the VAT Return.
- Different date ranges have been used when comparing the reports to the VAT Return.
- Unreconciled transactions from before the specified period have been included in the VAT Return, but not the Day Book reports.
- Supplier Refunds posted on a T24 tax code.
NOTE: When using the Flat Rate - Cash Based VAT scheme, Box 4 figures don't include any notional vat as this can't be reclaimed. Box 5 This figure represents the net VAT to be paid to HMRC or reclaimed by you. Box 5 is the figure in Box 3 less the figure in Box 4. Box 6 This figure represents the total value of sales. Using the totals from the reports you've run, Box 6 = (B - D) + J + L +N + W + IOSS Why the figures may not agree: - Manual adjustments may have been posted. To investigate this further > Make Adjustments. For further information about manual adjustments, please refer to this guide >
- Transactions on the reports use tax codes that aren't included in the VAT Return. To check if a tax code is included in the VAT Return, open Settings > Configuration > Tax Codes. Select the tax code you're investigating > Edit. If the Include in VAT Return check box is cleared, transactions using this code aren't included in the VAT Return.
- Different date ranges have been used when comparing the reports to the VAT Return.
- Unreconciled transactions from before the specified period have been included in the VAT Return, but not the Day Book reports.
- Customer refund posted on a T4 or T22 tax code.
Box 7 This figure represents the total value of purchases. Using the totals from the reports you've run, Box 7 = ( F - H) + P + R + T + X Why the figures may not agree: - Manual adjustments may have been posted. To investigate this further, click Adjustments. For further information about manual adjustments, please refer to this guide >
- Transactions on the reports use tax codes that aren't included in the VAT Return. To check if a tax code is included in the VAT Return, open Settings > Configuration > Tax Codes. Select the tax code you're investigating ad click Edit. If the Include in VAT Return check box is cleared, transactions using this code aren't included in the VAT Return.
- Different date ranges have been used when comparing the reports to the VAT Return.
- Unreconciled transactions from before the specified period have been included in the VAT Return, but not the Day Book reports.
- Supplier Refund posted on a T7, T8, T23 or T24 tax code.
Box 8 This figure represents the total value of EC sales. Using the totals from the reports you've run, Box 8 = Y Box 9 This figure represents the total value of EC purchases. The figure in Box 9 is equal to the total of all invoices less credits raised with an EC Purchase Tax Code, normally T7 and T8.
NOTE: If you'd like a report to show these transactions with the notional VAT calculated, please contact Sage Technical Support. |
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