Hi Astra, thanks so much for getting in touch. In most cases, providing the error meets HMRCs conditions, you dont need to report it. The VAT Flat Rate Scheme is an alternative way for small businesses to calculate VAT due to HMRC. Accountants in England and Wales. Shout out to StartUpAcc for the reminder. Errors of more than 10,000, up to a maximum of 50,000 can also be adjusted if the error is not more than 1% of the figure entered in box 6. Are not made on purpose (i.e. This includes: Another common mistake made by businesses is recovering VAT on deposits instead of waiting until the full balance has been received. The links you have provided are all for QB Online. If you cant or dont want to use PVA, therell be no change to the way you deal with VAT on imports for your business. office is 15 Victoria Place, Carlisle, CA1 1EW. With Postponed VAT Accounting wed generally think the initial overseas purchases be treated as zero rated because VAT is not assessed on the initial purchase, its assessed when it comes through HMRC/Customs agent in UK. Can you elaborate on your question somewhat - being frank your post suggests you may not fully understand how the flat rate process works.- apologies if you do and its simply my lack of ability to understand your point here. If youre confused, youre not alone. To manage this change, HMRC has established a new process called Postponed VAT Accounting (PVA). Ive sent a request through to the team that looks after Xero Central and asked them to update it. Information on the tax rates that can be used to populate certain VAT return fields are available here in Xero Central. With the Flat Rate Scheme: you pay a fixed rate of VAT to HMRC you keep the difference between what you charge your customers and pay to HMRC you cannot reclaim the VAT on your purchases -. The good news is that as of today, Xero now supports the Flat Rate Scheme and we promise to keep it simple for you. The treatment might be different depending on whether you are dealing with Postponed VAT Accounting or regular VAT on imported goods. I would go along with that. Find out what else you may be entitled to in our guide to reimbursable expenses and how you can claim them . Unfortunately, HMRC doesnt see it like this and input tax cannot be recovered on any kind of business entertainment. Apologies if any of above is wrong peeps. Clear Books and Xero both agree it should not be in Box 6 it appears. Get up to speed on what information you must include on your VAT invoice . By using xero.com, you accept our cookie notice terms. Armstrong Watson Audit Limited is registered to carry on audit work in the UK by the Institute of Chartered For example, lets say youre using the flat rate scheme with a flat rate percentage of 14.5% and a quarterly VAT inclusive income of 30,000. This is usually received around three weeks after the end of the month you received the goods in the UK. So using the principal of not looking for something that's not there, and relying on plain English, written for the business owner, I find 6.2 & 6.3 of 733 and 4.1 of 700/12 in harmony. Your email address will not be published. For VAT Return periods starting after 1st June 2022, import VAT accounted for using postponed VAT accounting (PVA) should not be included in your flat rate turnover. As outside the scope they have, by definition, not been "accounted for" They mean accounted for as a VAT entry. Thanks for the reply. Flat rate and old non-MTD VAT Returns will not have PVA functionality. 20%) but you simply pay over a reduced percentage (say 14.5%) to HMRC. The activities. If youve purchased a pool car that will be used by all employees, it needs to meet strict conditions including being allocated to more than one person and remaining on the business premises overnight. That's what the bit of the manual you quoted says, a retrospective withdrawal should be refused when the date requested falls within a return period that has already been filed. Store all copies of purchase invoice and VAT receipts including export documents and credit notes. Obviously with regard to leaving on dates that don't qualify on both points 1 and 2 above hmrc may be ameniable to help but will probably default to saying no unless you are adept at arm twisting with regard to the vat office. Box 1 would then show 5,000. Armstrong Watson is a trading style of Armstrong Watson LLP, Armstrong Watson Audit Limited and Armstrong Watson I have a client who is registered on the flat rate scheme for VAT. The new flat rates for types of businesses can be found on the HMRC website. Flat rate scheme Xero | VAT return flat rate scheme Xero Flat rate VAT scheme. 2023 Xero Limited. Maintain records of items you cant recover VAT on, as well as VAT claimed on mileage and any goods you give away or take from stock for personal use. About adjusting your VAT return Adjust the VAT box amount only Adjust the VAT box amount by adding an accounting transaction Griffin is the trading name of Griffin Audit Limited. Xero will then populate your VAT Return automatically. New Ultimate plan offers most comprehensive Xero package for small businesses, Xerocon Sydney: Xerocon returns to Australia, Xero and Capital One partner to help rewire the small business economy, Trailer Happiness: Serving party goers a taste of Carnival spirit in Notting Hill. About adjusting your VAT return Adjust the VAT box amount only Adjust the VAT box amount by adding an accounting transaction Instead, the VAT due on imports should be added to box 1 of the VAT Return after the flat rate calculation has been completed. Top Tip: Making Tax Digital is designed to reduce the risk of human error in VAT and tax returns. This can be complicated because there are several VAT schemes that businesses can choose from and the scheme you choose may affect your VAT rate (i.e. By keeping your finances in order and all VAT related paperwork organised, mistakes can easily be rectified on future returns. You may wish to change the following areas: If you have any questions about which areas you should update, please contact your accountant or Xero support. For example, if you buy a laptop to split between home and work, you can calculate what portion of the purchase is business-related and reclaim VAT. Thanks in anticipation of a clear answer! We use cookies to make your experience better. I will enusure in future i will always make my application to leave flat rate before i have done the final checks on said vat return :) Hi Jim - I think perhaps it might have been an idea to start your question with your last paragraph, most (including me) would probably have said "yep" without having to go any further. Here you pay VAT on your sales whether or not your customers have paid. This will help your efforts massively. how much VAT you charge to customers). Thanks, Joanne. Armstrong Watson LLP If not, delegate the role to someone with sufficient knowledge and expertise to keep you VAT compliant. According to a survey commissioned by Intuit QuickBooks, small UK business owners spend an average of 86 minutes checking their figures before submitting their VAT return to HMRC. If my presumptive answer above is correct the loss of tax for anyone on the 16.5% flat rate category is so minimal as to be inconsequentual as 19.8% of the vat that is normally billed to customeers is paid to the vat office anyway. His employer are now not paying the VAT on his invoices and paying them directly to HMRC. (PVA). Hi were thrilled to hear that you found our article interesting. You'll need to make sure you include your EORI and VAT registration number on your customs declaration. The flat rate percentage is applied when you calculate your VAT Return. https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions#accounting-for-supplies-that-straddle-the-temporary-reduced-rate. Here are some tips for better record-keeping: Although the cut off date for adjustments is four years, you must keep VAT records for six years after the date of your VAT return. At the link I found some more comment by respected expert commentators I'd missed previously. As scary as HMRC can seem when it comes to matters of tax, they understand that mistakes happen and wont automatically hit you with a penalty. This table explains each scheme in more detail. Xero can be set to exclude the income from flat rate turnover for the % calculation, but it will also leave it out of box 6. This goes to show that even when the figures appear to add up and the VAT codes seem correct, the complexity of VAT means you can never be sure. Is that interpretation wrong?". It may no longer be for him. Surely to include anything in box 6 that is not used in the Flat Rate calculation, would bring about a letter from HMRC (VAT) asking why the amount shown in box 1 is not x% of box 6!! To join the flat rate scheme your turnover must be 150,000 or less (excluding VAT), and you must apply to HMRC. To save you time on applying the reduced 12.5% VAT rate for every transaction, Xero enables you to set up default rates. In this video I show you how to do a VAT return in Xero.Its not just 5 clicks, you also need to do some checking before you submit the return.I show you step by step how to do these.The example in this video is for the Accrual/Standard VAT scheme2019 UPDATEThe Xero menus have been updated since this video was recorded.To access Financial Settings from the Dashboard you now choose:AccountingAdvancedFinancial SettingsTo access the VAT Return from the Dashboard you now choose:AccountingReportsTax - VAT ReturnTo access the Trial Balance Report from the Dashboard you now choose:AccountingReportsAccounting - Trial BalanceIn the UK you also need to be aware of the new rules for Making Tax Digital.You can read everything you need to know herehttps://www.xero.com/uk/resources/making-tax-digital/ Personal expenses are exempt too, although you may be able to claim a proportion of the VAT back on an item that has dual business and personal use. I can see how having this additional option and functionality would be helpful for you and your business. He may well need to leave the FRS. You are responsible for telling the government exactly how much VAT you charged to customers (known as output tax) as well as how much VAT you were charged by suppliers (known as input tax). we might record 25 VAT on a 110EUR (90) bill.Therefore, we need to make these VAT adjustments as our VAT return MUST agree with the PVA statement (so I'm told).Do Quickbooks plan to create similar functionality as Xero to allow easy posting of PVA VAT adjustments?Thanks! To do this go to Settings>General Settings>Financial Settings. By understanding where VAT return errors commonly occur and what HMRC expects of you, you can reduce your risk of making a mistake to reclaim what youre owed. Do I need to charge VAT to client for Freelancer? If there are significant DRC sales then this can be very costly. VAT on fuel purchased by business directors, partners and employees for business purposes can be reclaimed on a VAT return. From 1 October 2021, a new reduced rate of 12.5% will apply. Posting the PVA amounts to the VAT return using our new feature will update Box 1 and Box 4 on the VAT return. However, the general rule of thumb is no evidence = no claim. Keep copies of all VAT invoices and self-billing agreements (invoices prepared by the customer on your behalf). Further, there are several goods and services that are either VAT exempt (or qualify for partial exemption), out of the scope of VAT entirely, or charged at a reduced-rate or zero-rate. You may wish to ask your adviser to do this sense check for you. Where VAT becomes more complicated is when it comes time to file your VAT return. You have up to four years to put things right. Reporting - it just keeps getting better! Don't create work for yourself needlessly. Don't invite HMRC letters. And I'm now intrigued to know if the FRS VAT return I've just submitted now is technically wrong (though no tax loss). Required fields are marked *. registered office is 15 Victoria Place, Carlisle, CA1 1EW. To reclaim VAT on any business expense, you must provide evidence in the form of a VAT invoice. The most obvious choice being an accountant. I have been on the receiving end of a letter from HMRC asking this very point. This article was updated on Monday, 4th October 2021. No accounting transactions required. PPS holds an amount equivalent to the money in Tide current accounts in a safeguarding account which gives customers protection against PPS insolvency. At that point I stop looking and, of all things, would not start with OTS transactions. Xero displays filed returns under the Filed with HMRC tab and shows the return as Pending. "As outside the scope they have, by definition, not been "accounted for" They mean accounted for as a VAT entry.". By using xero.com, you accept our cookie notice terms. Website by Simon Pighills. The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. How it works Without getting into the full details, essentially the VAT paid on any import does not equate to exactly 20%, and each import will be a slightly different percentage (based on; exchange rate differences, assumed transportation cost and associated VAT, and customs own "VAT Adjustments" (whatever they are)). Ta all. Click Update to generate the VAT report Introduction How the Flat Rate Scheme for VAT works in Xero XU Academy 6.25K subscribers Subscribe 80 Share 3.2K views 1 year ago VAT in Xero Following on from my explanation of the Flat. Blog / Small business tips / How to avoid and rectify common VAT mistakes. Our new feature will update Box 1 and Box 4 on the VAT on invoices... Be found on the receiving end of a VAT return article was updated on,! 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