About the Flat Rate Scheme

An alternative to the standard VAT scheme is the Flat Rate scheme. This is where a business will charge VAT to its customers as normal but will pay HMRC a set percentage of the total sales (inclusive of VAT) rather than offsetting the VAT paid to suppliers.

https://www.gov.uk/vat-flat-rate-scheme

This can be beneficial for businesses such as some consultants or contractors who do not incur many expenses which are subject to VAT. It can also make life easier as the VAT returns are simpler to complete on this scheme.

PLEASE NOTE - this is not the same as the Agricultural Flat Rate scheme where you cannot charge VAT but you can add the flat rate addition of 4% to qualifying sales – if this applies to you please see our document on the Agricultural Flat Rate scheme.

https://www.gov.uk/guidance/agricultural-flat-rate-scheme-notice-70046

There are certain restrictions for joining the flat rate scheme and there is an application form that needs to be submitted to HMRC, so it's a good idea to talk this over with a professional first.

Setting up the Flat Rate Scheme in Farmplan Business Cloud

If you have not entered your VAT details on the new company wizard when setting up Farmplan Business Cloud then you can do so by going to Company Settings > Financial Info Tab.

Please then click the checkbox to tell Farmplan Business Cloud that your business is VAT registered, enter your VAT registration number, the registration date and click 'VAT Schemes'.

You can then enter the start date of the scheme registration, the scheme type and the flat rate percentage.

Even if this is your first year on this scheme, enter the full percentage as Farmplan Business Cloud will calculate the first year's 1% discount from the VAT registration for you. If you are changing from a different scheme, Farmplan Business Cloud will take care of the switch over, i.e. no discrepancies will be caused.

How Flat Rate VAT is recorded in Farmplan Business Cloud

When creating your invoices and entering expenses you still need to use VAT code 'ST' as normal.

The flat rate percentage is applied at the point you run your VAT return. Farm Business Cloud will calculate the amount you owe based on your flat rate percentage and transfer it into the category 'VAT Owed to HMRC'.

You will also notice another category called 'Flat Rate Benefit Account'. This category will show the difference between the VAT due on the Flat Rate Scheme compared with the VAT that would have been due on the standard VAT scheme. If it's a credit balance it means you are benefiting and if it's a debit then it means you are losing out on the Flat Rate Scheme.

You can only have sight of this information if you use VAT code 'ST' on the relevant expenses. If you use tax code 'NV' on your expenses (this is an option), then the VAT return will still calculate correctly but you will not be able to see the difference in the liability between the Flat Rate and Standard Scheme.

Please note, as the Flat Rate scheme calculates the amount of VAT payable based on the value of applicable sales you should not mix purchases and sales on the same transaction. For example, if you sell something and pay commission on the sale then this should be recorded as two transactions a sales invoice/money in transaction (for the amount of the goods sold) and a purchase invoice/money out transaction (for the amount of the commission).

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