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6 Common errors made on Flat-rate scheme VAT returns

Posted on 10 September 2015

Since VAT return figures under Flat-rate scheme is worked out different to the standard VAT scheme based return, many people make mistakes on their return.

HMRC has listed the following common errors on their website.

1) the 1% reduction is applied by businesses that have been registered for more than 12 months

When you registered to the Flat-rate scheme you get 1% extra reduction in the first year. This 1% benefit is only for the first 12 months and after that you should calculate your based on your allocated rate. For example, if based on your industry your flat-rate is 14.5%, you will need to calculate at 13.5% only for the first 12 months and after that start using 14.5% rate.

2) forgetting to include exempt income, such as rent, in the turnover to which the flat rate is applied 

Under the flat-rate scheme the flat-rate is applied on the gross income including any exempt incomes.

This is an important factor to consider while deciding to register for the scheme. Subject to the nature of your business, in some cases flat-rate vat scheme may not be favourable for the business.

3) VAT exclusive figure is put in box 6, meaning that the flat rate is applied to the net, rather than the gross turnover

Box 6 [Total value of sales, excluding VAT]- If you’re doing return under flat-rate scheme you should enter the Gross sales in Box 6 and apply the flat-rate on the Gross sales value (net+vat).

It’s a very common misunderstanding of how flat-rate scheme works and this error can be costly for some businesses.

4) failure to include any VAT on EC acquisitions in box 2

While you may be on flat-rate scheme any EC acquisitions still need to be recorded normally.

5) failure to account for VAT on EC acquisitions in box 2 at the standard rate.

The VAT on EC sales still need to be recorded at the standard rate.

6) ‘None’ (or ‘£0.00’ for online returns) missed out of box 4

Under flat-rate scheme the box 4[VAT reclaimed in this period on purchases] should have nil value since you are not calculating vat liability via standard method.

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