VAT - Special Situations under the Flat Rate and Flat Rate Cash Schemes
There are a number of special VAT situations under the Flat Rate and Flat Rate Cash Schemes.
- Amending the flat rate effectivity dates / Ending flat rate
- Change of flat rate percentage
- Flat rate Cash Scheme and Miscellaneous Deposits
- Selling goods and services to customers in the EU
- Selling goods to other parts of the world (exports)
- Buying goods from EU suppliers
- Buying and selling services outside of the UK (Reverse Charge)
- Reverse Charge Procedure
Amending the flat rate effectivity dates / ending flat rate
The dates for which the flat rate scheme applies can be amended in Configure Flat Rate(s)
HMRC - Configure Flat rate(s) - Flat Rate Start or End Date
The impact of changing the dates is that all open VAT transactions (i.e. not yet included in a VAT return) will amended as appropriate. If before the date change the transaction was not caught as flat rate but now is, it will be adjusted to be flat rate and vice versa. If use of the Flat Rate Scheme is to be terminated an End Date for the last occurrence of a flat rate percentage must be entered before the Flat Rate Box on the configuration screen is un-ticked. This is usually done at the end of a VAT period.
Change of Flat Rate percentage
The flat rate percentage can be amended in Configure Flat rate(s)
HMRC - Configure Flat rate(s) - Rate
The impact of changing the percentage is that all open VAT transactions (i.e. not yet included in a VAT return) will amend as appropriate.
Flat Rate Cash Scheme and Miscellaneous Deposits
The Cash based scheme requires that Output tax be accounted for when the payment is received. Usually a Sales Invoice will represent the VAT document and the process of applying a receipt will place the appropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a Miscellaneous Deposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and not apply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close the VAT period in this condition; any VAT would not be accounted for and therefore the business is potentially non-compliant.
To allow flexibility as well as the ability to comply, a list of all currently un-applied Miscellaneous Deposits that have been posted to Customer Accounts is available from the HMRC menu.
It is recommended that this list be reviewed prior to accepting a VAT Return.
If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, the listing allows a user to define the VAT rate that they would wish to apply to any particular deposit as shown below: -
When SUBMIT is clicked a reversing VAT Journal is created for each item. It posts a VAT amount computed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT (Cash Scheme). The VAT100 and the VAT transactions Reports will record the appropriate VAT and turnover amounts when the return is accepted for filing; also the initial journals are locked because they are included in a closed VAT filing. Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals are reversing.
When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will be processed as normally but because there is a reversed amount from the Journal the impact will be an adjusted amount If a different VAT rate is applied to the sales invoice or no further impact.
A user may cancel journalising un-applied deposits any time prior to accepting a VAT return, by going back to the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking SUBMIT again.
Selling goods and services to customers in the EU
Provided your EU customer is VAT registered and you have their VAT number and you indicate on the customer maintenance screen that you have validated it you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriate rate must be charged. A consequence of the Customer VAT number validation is that the system will default to a zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure you are strongly recommended to take professional advice.
Sales invoices will have text added for compliance purposes as follows. If the sales item is set as Goods and zero rated then 'Includes zero rated intra-EC supply' is shown. For other zero rated supplies the text is 'may be subject to reverse charge in the country of receipt'. If a VAT rate of exempt is selected then the text is 'Includes exempt supply'.
In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoice will display any VAT amount in both sterling and currency. Additionally where a business is using the flat rate cash based scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not when payment is received.
Part of the reporting procedure to HMRC, requires that a quarterly (or monthly) EC sales list be submitted. Provided you have set up the details of VAT registration number and country of your EU customers, a list can be prepared via the VAT menu. Check to ensure that the country prefix code is set both for the entity (VAT configuration) and the Customer (Customer Maintenance).
HMRC - VAT EC Sales List (V101)
Make any adjustments and click SUBMIT to prepare the report. The report can be accessed from the VAT menu.
HMRC - Reports - View Saved EC Sales List Returns
Selling goods to other parts of the world (exports)
If you export goods to a customer outside the European Union, your supply is normally zero-rated, provided certain conditions are met. If you are uncertain consult with your advisor. The flat rate percentage will be applied to the VAT inclusive turnover just as for a UK sale, so even if the supply is zero-rated the percentage will be applied and vat due. It may be that if the business has a higher proportion of this type of sale, the flat rate scheme may not be appropriate. We suggest you consult your advisor.
Buying goods from EU suppliers
If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU member state supplied from a VAT registered business in that state, you must account for VAT in the UK on acquisition of the goods as output tax. Unlike the other VAT schemes however, the flat rate scheme does not allow for the recovery as input tax. (VAT notice 733 Para 12.4)
The VAT rate applicable will be that which would apply to a UK supply of identical goods. So no tax will therefore be due on the acquisition of goods that are currently zero-rated in the UK.
To record VAT on an EU Acquisition: -
- Enter a purchase transaction and fill out data as required.
- Enter in the net amount box the value of the acquisition
- Select EU Acquisition for the VAT rate.
- A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate that should apply calculate the correct VAT amount and overwrite with that amount.
- The system will record the output tax side only.
Note that if you are using the flat rate cash based scheme, the transaction will be recorded immediately (not when the bill is paid) consistent with Para. 4.3 of the notice 731 Cash Accounting.
Buying and selling services outside of the UK (Reverse Charge)
Supply and receipt of services inside the UK are dealt with as described above in recording of VAT. If however you supply or receive services from either EU member states or non-EU member states there are complex rules dealing with where the supply of the service is actually performed. The VAT accounting necessary will be dependant on the type of service it is. We strongly recommend you take advice from HMRC or your advisor. The VAT codes will allow you to account for VAT in the correct manner once the applicable rules have been confirmed.
Reverse Charge Procedure
The Reverse Charge Procedure is not used under the Flat rate scheme.