Hello
I have just joined the VAT flat rate scheme at 10.5% should this get applied to all my previous invoices even those that have been paid.
I am struggling to figure out why my tax liability is not 10.5% of the sales income.
Example
INV01
Acct Rec £2,564.16 (sales)
Acct Rec £375 (vat 15%)
Sales income £2564.16
VAT Liability £308.61 (why is this not 10.5% of 2564.16)
Gain £66.39
Regards
Rod Cain
Hi Roger,
No, when you tick the 'Flat Rate' box in the VAT setup window it will not apply to existing transactions, only new ones.
The flat rate percentage applies to the VAT-inclusive amount, not the VAT-exclusive amount. See here for details:
http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm
So in your example, if you are charging your customer £2564.16 (ex-VAT) you should add 15% VAT (£384.62) and so your customer would pay you £2,948.78. You would then pay 10.5% of this (£309.62) to HMRC.
(Note also that the VAT your customer pays in the above example is £384.62, not £375.)
Regards,
