VAT Flat rate scheme - self assessment

manmash

Im looking at registering for Vat as I want to expand the business to sell more which will put me over the threshold to register, but will be under the 150k that allows me to use Flat rate scheme.

If I register for flat rate scheme, I do a vat return every quarter for a percentage of turnover, I understand that. My reason for preferring flat rate scheme is it's easier than making sure I have vat invoices for all expenses and the labour that goes into collating it. My 1st query is how does this affect my self assessment? As at the moment I submit gross values for every expense (which is correct as I am not vat registered) If I am on flat rate scheme, do I do exactly the same? because I am not claiming vat back on expenses? how does this work?

Do I still enter gross amounts? or do I need to still calculate net amounts? how does the registering for Vat, more specifically flat rate scheme change your self assessment?

Thanks

DullGreyGuy

You quote your revenue as the price excluding vat plus the delta in VAT collected and VAT paid over

manmash

 DullGreyGuy said:

You quote your revenue as the price excluding vat plus the delta in VAT collected and VAT paid over

Sorry, I only half understand this due to the lingo.

So in my dumbed down terms..

My turnover I put Net of vat (so excluding the 20% I charged customers). Then add back on the amount of excess I have after paying the vat man (so the 20% - the 8% flat rate I paid)


So for example, if I sell £120,000 total gross, my vat paid would be flat rate 8%, so £9600 vat paid.

On my self assessment I would put £100,000 (net of vat) + £10400 (20k vat - £9600 vat paid)

So my turnover figure would be £110,400

The rest of my expenses would be gross inc vat amounts?

So that would be the only change to submitting my self assessment (apart from clicking the box that said I have sold over vat threshold?

Thanks so much for your help

Bookworm225

manmash said:

 
So for example, if I sell £120,000 total gross, my vat paid would be flat rate 8%, so £9600 vat paid.

On my self assessment I would put £100,000 (net of vat) + £10400 (20k vat - £9600 vat paid)

So my turnover figure would be £110,400

The rest of my expenses would be gross inc vat amounts?

So that would be the only change to submitting my self assessment (apart from clicking the box that said I have sold over vat threshold?

Thanks so much for your help

correct, under the FRS your income now has 2 figures: net amount charged on face of sales invoice + vat margin ("Vat profit") 

I trust you realise FRS cannot be used if your accounts use the cash basis? (which of course is now the default method as far as HMRC is concerned, so you will need to tell them you are using the accruals method)

manmash

Bookworm225 said:

manmash said:

 
So for example, if I sell £120,000 total gross, my vat paid would be flat rate 8%, so £9600 vat paid.

On my self assessment I would put £100,000 (net of vat) + £10400 (20k vat - £9600 vat paid)

So my turnover figure would be £110,400

The rest of my expenses would be gross inc vat amounts?

So that would be the only change to submitting my self assessment (apart from clicking the box that said I have sold over vat threshold?

Thanks so much for your help

correct, under the FRS your income now has 2 figures: net amount charged on face of sales invoice + vat margin ("Vat profit") 

I trust you realise FRS cannot be used if your accounts use the cash basis? (which of course is now the default method as far as HMRC is concerned, so you will need to tell them you are using the accruals method)

I dont use cash basis (I didnt realise this was now default? worrying now I have been doing something wrong?).

I always make sure I don't put an X in the box that says:

" If you used cash basis, money actually received and paid out, to calculate your income and expenses put

'X' in the box: "

So hopefully all is ok with this?

To be fair, I don't think cash basis would make a difference with me as I receive instant payment for what I sell, and I dont use credit for suppliers, I pay as I purchase so I assume Cash basis would not be a benefit to me or change much.

I use standard accounting. with year dates 6th April to 5th April. Sales are paid for when sold so sales is quite simple for getting in correct dates.

I use COS, opening stock +purchases (plus some other costs of sales like transaction fees/cost to post sold items) - Closing stock.

I guess cash basis would change my overheads slightly but not much, I work from home so most things are a percentage of costs. Anything I buy in overheads again is paid for without credit.

Didn't mean to go through all that but just checking my accountancy is still current and hasn't had rules changed?

Bookworm225

Cash basis: Cash basis before 6 April 2024 - GOV.UK

manmash

Bookworm225 said:

How does it work with buying stock on the cash basis method? If I dont use COS calculation, then surely I would make a massive loss every time I buy a load of stock and make a ridiculous profit when I sell the stock I hold. I have a lot of stock.

I still cannot decipher if it is mandatory now to move to cash basis? I havent submitted my 24-25 accounts yet so I can still change if needed, but I have no idea how it would work moving from one to another either

Bookworm225

manmash said:

Bookworm225 said:

How does it work with buying stock on the cash basis method? If I dont use COS calculation, then surely I would make a massive loss every time I buy a load of stock and make a ridiculous profit when I sell the stock I hold. I have a lot of stock.

I still cannot decipher if it is mandatory now to move to cash basis? I havent submitted my 24-25 accounts yet so I can still change if needed, but I have no idea how it would work moving from one to another either

sorry but if you cannot understand that link how on earth are you coping with doing accrual ("traditional") accounting?
As I said before, using FRS means you cannot use cash accounting at all. The link is because you expressed ignorance of HMRC's change to the default method. The link explains what you have to do to opt out of the default given you cannot use cash anyway.

That said, if you talking about stock and COS I am surprised you have chosen FRS anyway unless the stock you are purchasing has no / irrecoverable VAT on it. FRS is often not cost effective if you have a high level of expenses with recoverable VAT on them. What does your accountant say?

What software do you use? Have you heard of Making Tax Digital ("MTD") and the requirement for businesses with minimum £50k turnover to submit their records via MTD compliant software from April 2026?

manmash

Bookworm225 said:

manmash said:

Bookworm225 said:

How does it work with buying stock on the cash basis method? If I dont use COS calculation, then surely I would make a massive loss every time I buy a load of stock and make a ridiculous profit when I sell the stock I hold. I have a lot of stock.

I still cannot decipher if it is mandatory now to move to cash basis? I havent submitted my 24-25 accounts yet so I can still change if needed, but I have no idea how it would work moving from one to another either

sorry but if you cannot understand that link how on earth are you coping with doing accrual ("traditional") accounting?
As I said before, using FRS means you cannot use cash accounting at all. The link is because you expressed ignorance of HMRC's change to the default method. The link explains what you have to do to opt out of the default given you cannot use cash anyway.

That said, if you talking about stock and COS I am surprised you have chosen FRS anyway unless the stock you are purchasing has no / irrecoverable VAT on it. FRS is often not cost effective if you have a high level of expenses with recoverable VAT on them. What does your accountant say?

What software do you use? Have you heard of Making Tax Digital ("MTD") and the requirement for businesses with minimum £50k turnover to submit their records via MTD compliant software from April 2026?

I am sorry if I annoyed you, I am trying to understand everything.

Its not that I didnt understand the link, the link did not have all the info I needed, so I ask you some follow up questions.
It appears on other bits I have read since that I literally have to just tick a box in self assessment if I am continuing to use traditional accounting, is that your understanding too? 

It is for admin reason I would prefer to move to FRS, also a lot of what I buy to resell is from online shops when sales hit or discounts overlap etc. I do not always get vat invoices, more order confirmations to my email etc. pushing for VAT reciepts for everything wouldn't be simple.

I do not use software I am spreadsheet based but I am aware of MTD which I will be needing to start in April, this is what caused me to start refreshing and look at my options. I am aware I need to be on a system from April next year, I am starting now with getting a good understanding and manoeuvring ready, I have not got an accountant, I did have basic level AAT myself but it has been a while.

DullGreyGuy

manmash said:

Bookworm225 said:

How does it work with buying stock on the cash basis method? If I dont use COS calculation, then surely I would make a massive loss every time I buy a load of stock and make a ridiculous profit when I sell the stock I hold. I have a lot of stock.

I still cannot decipher if it is mandatory now to move to cash basis? I havent submitted my 24-25 accounts yet so I can still change if needed, but I have no idea how it would work moving from one to another either

As you say, with cash based you take the hit for buying the stock when you pay for it not at the point of sale of the goods. 

Unless you are massively growing your inventory then you should be making a massive loss however cash accounting does help significantly from a cashflow perspective given you can immediately knock off the stock from your P&L and dont have to pay tax on customers you've sold to on credit terms or bad paying customers. 

Cash accounting is getting pushed more but its still possible to do traditional/accrual accounting