Notes on the Flat Rate Scheme for VAT
Tip: The new rates for the Flat Rate Scheme from 1 December 2008 are described in Annex E (Page 43) of the HMRC Detailed Guide (PDF)The Flat Rate Scheme for VAT is a simplified way of calculating your VAT liability. To use this scheme, your annual turnover (excluding VAT) must be less than £150,000 and you must register with HM Revenue and Customs. For more information see VAT Notice 733 or call the HMRC National Advice Service on 0845 010 9000.
Here's an example showing the Flat Rate VAT Calculations:
In this example, the VAT liability under the Flat Rate Scheme is £11 less than under the normal VAT rules.
Note that the Flat Rate isn't always 8% - it depends on your type of business. Click here to find out the flat rate for your business type.
To set up Solar Accounts to use the Flat Rate Scheme, click menu Setup > Contact Details & VAT, then select 'Registered for VAT' and 'Use Flat Rate Scheme':
Enter the flat rate for your business and click OK.
First-Year Discount
HM Revenue and Customs may allow you to apply a 1% discount to the Flat Rate for the first year your business is under the scheme. This discount should be included in the Flat Rate field above. After a year, change the Flat Rate field to exclude the discount — existing transansactions will use the old rate while new transactions will use the new rate.VAT on Purchases
When you enter a new purchase you should continue to enter the normal rate (usually 15%) in the VAT column. This rate will not affect your VAT return but will be used when calculating how much of your profit is due to the Flat Rate Scheme.Reclaiming VAT on Capital Purchases
Under the Flat Rate Scheme, you cannot normally reclaim VAT you have paid on purchases. However, an exception applies to some capital purchases valued above £2,000 – see the HMRC website for details about which transactions qualify for this exception.To reclaim the VAT on a purchase, click the details button (ie. the Up Arrow) next to the VAT Treatment area in a transaction window:
Then deselect the Flat Rate Scheme checkbox and click OK:
The VAT on this transaction will then be calculated under normal VAT rules, allowing you to reclaim the VAT you have paid. Note that if you later sell the capital asset, you should also exclude the sale from the Flat Rate Scheme in the same way.