VAT Rate Schemes

Setting up VAT including invoice based, cash account and flat rate

Luke Mayo avatar
Written by Luke Mayo
Updated over a week ago

When you initially set up Farmplan Business Cloud, you should have entered your VAT settings in the new company wizard. However, it is worth double checking your settings before you run your first VAT return.

To check these settings, go to Company Settings > Financial Info Tab

Tick 'Business is VAT registered'.

Enter your VAT number and your VAT registration date. This is shown on your VAT certificate or you can get it by calling HMRC.

If your business sells to or buys from other VAT registered businesses in Europe (Euro VAT), then tick the relevant checkbox. This will enable EU VAT and Reverse Charge codes which populate to include those transactions on your VAT return in the correct way. (NB From 31st December 2020 most businesses will no longer be required to complete an EC Sales list but if you supply goods from Northern Ireland then you may still need to complete one. See HMRC for more details).

Click on the 'VAT Schemes' button and set the scheme that you are on. The options you have are:

  • Invoice Based: This is the most common scheme and is standard when registering for VAT. Farmplan Business Cloud will calculate the VAT on your sales and subtract the VAT on your purchases/expenses to give you the amount due to or from HMRC each quarter.

  • Cash Accounting: This is similar to Invoice Based VAT but the VAT becomes due when payments are made and not when invoices are entered. Most farming businesses will not use Cash Accounting as they are net reclaimers of VAT.

(NOTE - Cash Accounting for VAT is not the same thing as cash based data entry where you only use money in and out transactions and do not enter invoices. That is still considered Invoice Based VAT). If you are not sure you should check with HMRC or your accountant.

While you can switch between Invoice Based and Cash Accounting VAT without informing HMRC, it is based on certain criteria. Please check the latest rules.

  • Flat Rate - Cash Accounting: This is a scheme that simplifies VAT meaning you pay a flat percentage to HMRC rather than offsetting your sales VAT against your VAT on purchases. You must apply to HMRC to join the Flat Rate Scheme. Cash accounting means that the VAT becomes due when you receive your payments from your customers, not when you create the invoice.

  • Flat Rate - Invoice Based: This is the same as above, except the VAT becomes due at the point you invoice your customers instead of the point you get paid.

It is important that you select the right scheme for the relevant periods as incorrect selections will mean your VAT returns will be inaccurate.

Please note there are 2 types of Flat Rate VAT schemes. The one above is not relevant to the Agricultural Flat Rate Scheme which is treated differently. Please see Flat Rate Scheme and Agricultural Flat Rate Scheme articles for more details.

You only need to enter a percentage if you are on the Flat Rate Scheme as it depends on the type of business. (Farmplan Business Cloud will know the standard rate). For those on the Flat Rate Scheme, you will need to enter the full percentage of your flat rate. Farmplan Business Cloud will automatically calculate the 1% discount you are entitled to for the first 12 months from VAT registration.

If you change your scheme you will need to update these settings. Simply add a new scheme with the start date of the switch (usually the start of a new VAT quarter). You do not have to worry about inconsistencies when switching, as the program has been designed to calculate switching between schemes error free.

To learn more about running a VAT return in Farmplan Business Cloud please click here.

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