yes the percentage is worked out on the gross. Don't forget that you get a 1% discount in year 1.
In your scenario the amount liable for income tax would be £2400 less £240 vat (not less £400 vat)
Just out of interest Rob, how would you record it, Sales £2400 then VAT payment as an expense? I know normally the VAT wouldn't go anywhere near the PL but it's just got me thinking, and I've got accounts to do in a couple of weeks for someone on flat rate.
There are different ways to account for it John. I tend to go with the easiest, so I would debit trade debtors £2400 and credit sales £2400 (i.e. the gross amount), then at the end of the vat quarter debit sales £240 and credit the vat control account £240. The net result is sales of £2,160.
