Hi all. This is probably an easy question to answer, but I am really struggling with it! I am in the process of taking on a new client, who wants his accounts on Sage. (I have Sage Line 50, but its about 3 years old now.) He recenty became VAT registered, and by advice from his accountant, is on the VAT Flat Rate scheme, where he just pays a lower percentage of VAT on his Sales Invoices. I understand that I have to raise his sales showing VAT at 15% (ie £100 + £15 VAT), which means that this full amount must show in Debtors, but how do I post the transactions to show the correct VAT element, and then prepare the quarterly VAT Return? I have thought and thought about this, and just seem to get myself in more of a muddle about it! (I have searched under the Sage Help button on my software, but that only shows Standard or Cash Accounting of VAT, there's nothing for Flat Rate!) Surely there is a simple way around this?
They way thatI have done it is to account for std rate on sales as you are now. At the end of the VAT period, total the sales in the period and work out the VAT due using the flat rate %age. the difference then needs to be journalled out of the Sales Tax Control Account and accounted for as a 'sale' - I created a new nominal for it.
Sage have very detailed knowledgebase articles on operating flat rate on Sage, which I have succesfully used having recently started book-keeping for my first client using this system.
If you email me at alison.mead@siliconbullet.com I can send it to you - or if you have Sage Cover just call Sage and ask them or look at thier online database. There are a couple of reports which they send out on request too which don't come as standard.
I thought I'd got my head around this, but have just had a spanner thrown in the works! I had posted the sales in Sage as net, with the 15% VAT going to Output VAT as normal. At the end of the quarter I calculated the Gross value of sales, and applied the Flat Rate VAT to it, to find out what the client needed to pay. The difference between this and the 15% I have posted to a Flat Rate VAT Income account in Sage. HOWEVER, I have now heard from the accountant who will be finalising this clients year end. He has said I should post everything as Gross Sales, and after applying the Flat Rate VAT percentage at the end of the quarter, show this value as an expense! If I do it his way, although the Gross and VAT values will be the same for presenting to HMRC, the Sales Lines in his P&L will differ, as my way will show Net Sales plus the difference between 15% VAT & the Flat Rate VAT, and his way will show the Sales Line as Gross. HELP.............I am getting more and more confused as to the way forward with this - which way is correct for showing in the accounts?
From what I understand and from what I've been taught, when coming to do the year end accounts, sales have to be recorded net as the VAT saving is not actually part of your clients turnover.
The saving on paying over less VAT should then be shown on the face of the accounts separately, as you have done in Sage.
It would not be a true reflection of your clients turnover to record gross of VAT, and besides the notes in accounts clearly state that turnover is recorded net of VAT.
The only thing to note is that when it comes to doing the VAT returns, the turnover should be recorded gross in Box 6.
Hope that helps, Andy
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Bookkeeping and payroll services in and around Swindon www.m4books.com
That is very interesting M4 Books Ltd, as I would agree with you, and that's how I expected to post it. However, I have now spoken to 2 seperate accountant contacts about this, (one being the new accountant who will prepare this clients year end accounts) and both have indicated that is it 'easier' to post sales as gross, and show the flat rate VAT paid as an expenses. Looking at the accounts done for this client for last year, (which wer done by an accountant, not a bookkeeper,) they have posted the same way - Gross Sales with VAT as an expense. Unless, I suppose, they do a year end adjustment to reflect the Net sales true figure?
Yes, hopefully they do do an adjustment at the year end to reflect the true net sales value. My only thought with recording gross is that you are creating extra work for the accountant which is seemingly unnecessary as you were applying the correct treatment anyway.
When I prepare accounts I'm not sure I would be happy about seeing the client recording sales gross. I like to run my own checks ensuring that the client themselves are charging the correct amount of VAT (I'ld prefer to tell them of any mistakes before the VAT man does).
But if the accountant and you are happy to do it that way, then it's definitely a little quicker for you
Andy
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Bookkeeping and payroll services in and around Swindon www.m4books.com
I was searching through here for stuff on flat rate VAT and came across this thread about accounting for gross sales with VAT as an expense. I also had a look on HMRC and found the following link
7.8 How do I prepare business accounts for income tax purposes while I am using the flat rate scheme?
It is expected that accounts for businesses who are using the scheme will be prepared using gross receipts, less the flat rate VAT percentage, for turnover and that expenses will include the irrecoverable input VAT.
For both VAT and income tax purposes, there is a requirement to keep a record of sales and purchases. But, for businesses using the scheme, that record does not have to analyse gross, VAT and net separately. The records need only be complete, orderly and easy to follow.
See Notice 700/12 Filling in your return for further details.
It seems to me that this isn't far off what was being discussed. I'd be interested to know what others are doing now as the original thread is a few years old.
