This ensures the postponed VAT amounts required by HMRC are handled correctly. Viciuno Well continue to keep you updated on the latest changes to Xero, so you can focus on your business. The third and final episode in my HM Revenue & Customs blogging trilogy this week concerns a new capability were opening up today. If youre using the cash accounting scheme or the standard accounting scheme, box 6 should include your income net of VAT. But the rule has another side that often goes overlooked: you cant claim bad debt relief until after six months from the due date. Click Update to generate the VAT report Instead, the VAT due on imports should be added to box 1 of the VAT Return after the flat rate calculation has been completed. Also include any amount you have entered in box 8. To do this go to Settings>General Settings>Financial Settings. By using xero.com, you accept our cookie notice terms. Stay abreast of any developments through reputable sources like the GOV.UK website, news websites and blogs like this one to ensure you dont fall foul of VAT errors. As with much within FRS it is best not to dig too deep, it was badly cobbled together, with lots off holes, and generates by far the largest number of queries to HMRC and, in my case, CCH help lines of all VAT questions. 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. Find out what else you may be entitled to in our guide to reimbursable expenses and how you can claim them . HMRC has announced a change to its current temporary reduced rate of VAT for hospitality, holiday accommodation and attractions industries. From 1st June 2022 businesses using the flat rate scheme for VAT face changes to the way in which they must treat import VAT that will have financial and practical implications for how they prepare VAT Returns. how it happened, the date it was discovered and the amount of VAT involved), Include the value of the error in your VAT account. Top Tip: You have to register for VAT when you reach the VAT threshold. Armstrong Watson Audit Limited is registered to carry on audit work in the UK by the Institute of Chartered No outside of scope supplies in Box 6. 2023 Xero Limited. Any such supplies youve had and made should be accounted for under the reverse charge provisions.https://www.gov.uk/guidance/the-vat-domestic-reverse-charge-procedure-no khalm0 It will be released well before you need to deal with your first VAT Return in the new year. So, if your business takes a deposit or down payment from customers for goods or services, VAT is due when that initial payment is received, unless you have already issued an invoice. Registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales. This means there wont be any difference in the VAT treatment of imported goods from European countries and the rest of the world. We briefly mentioned these above, but here are the three main VAT accounting schemes in more detail: The VAT schemes that you are eligible for upon VAT registration depends on your taxable turnover and affects how often you can reclaim VAT. The exception will notify HMRC that the transaction has been accounted for within the current period but refers to a previously filed period. Still undecided. The Flat Rate VAT return in Xero doesn't support Domestic Reverse Charge (DRC), so transactions need to be manually added using the reverse charge provision. Photo by Kate Oseen, published on Unsplash. Thank you so much for sharing your feedback with us. How to avoid and rectify common VAT mistakes, 9 common VAT return mistakes made by small businesses, VAT exempt (or qualify for partial exemption), reimbursable expenses and how you can claim them, what information you must include on your VAT invoice, the VAT threshold and when should you register for VAT, choosing an accountant for your small business, integrate seamlessly with your Tide account, what Making Tax Digital means for your small business, A quick guide to VAT when youre self-employed, Voluntarily register for Standard Rate VAT, Register for Standard Rate VAT or Flat Rate VAT, Register for Standard Rate VAT, Flat Rate VAT, Cash accounting scheme or Annual accounting scheme. However, for an easy life and given the experts say don't include it, I may just exclude it from Box 6 and if HMRC ever question this, I will ask to show where it explicitly says it one way or the other. 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. If you're using cash or standard VAT accounting, box 6 will be your income net of VAT, so 25,000. PVA is quite a complex topic. As a side issue how does other software handle outside the scope of UK VAT income for box 6? Are you aware of this fact - ie the 16.5% is clauclated on gross vat inclusive sales not net sales. Get our best stories straight to your Inbox. There is a not a massive inconsistency here as presumably hmrc give any business the benefit of the doubt that as far as they are concerned vat is not calculated till its submitted. Blog / Small business tips / How to avoid and rectify common VAT mistakes. 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. If you realise youve entered the wrong figures on your VAT return, try not to stress. We just need to be able to enter the correct PVA VAT for each transaction/quarter without a messy workaround. Shout out to StartUpAcc for the reminder. Box 1 would then show 5,000. How to fill in each box on your return 4. - if this client is permanently on the 16.5% rate they are almost certainly better of swapping to normal vat unless their expenses are almost non existent or they hate the other way of working out vat. Top Tip: Making Tax Digital is designed to reduce the risk of human error in VAT and tax returns. 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. This will remain in effect until 31 March 2022. Create a folder that contains copies of your VAT certificate, submitted VAT returns and all correspondence with HMRC. An exchange in the Xero forum revived the old "do you /don't you include" in box 6 of a flat rate scheme return(FRS) for non EC outside the scope supplies. You can simply correct it by making adjustments on your next VAT return. The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. 30% of an assessment if HMRC sends you one thats too low and you do not tell them its wrong within 30 days. Hello,As you may have seen Xero have created a function to apply a PVA VAT adjustment:https://central.xero.com/s/article/Adjust-the-amounts-on-a-VAT-return#ApplyaPVAadjustmentPVA is quite a complex topic. You can find a full list of MTDfV software on the GOV.UK website. You must have JavaScript enabled to use this form. This is because the amount that needs to be entered into box 6 depends on which VAT scheme youre using. In addition to the purchase of a car, mistakes are commonly made on lease cars, where 100% of VAT is recovered as input tax. -. Expert guide to CIS and new reverse charge rules, Getting started with client engagement letters, A fool-proof marketing strategy for accountants. Purchases Record all your purchases as No VAT. 1. Do I need to charge VAT to client for Freelancer? Get our best stories straight to your Inbox, To manage this change, HMRC has established a new process called. There is a code you need to create in the system, this article will help youhere with that, however just to let you know there will be no adjustment button made in the system for it though. By using xero.com, you accept our cookie notice terms. I did this with my only FRS client back in March, when DRS first came in. Thanks! 7. Make sure to highlight every new or unusual transaction so that you can be sure that its given the correct treatment. From 1 October 2021, a new reduced rate of 12.5% will apply. I have always done my application to leave via email application and as of yet this has alwasy worked albeit response is slow - the only annoying bit here is you dont get get an email confirmation to say your emaoil has ben received - not great bearing in mind it may be 4 months before you here from them - thankfully my requests do seem to be on file at hmrc even if not actioned as of yet. Top Tip: Before you continue, its important that you understand the fundamentals of VAT, which you can learn about in our guide to everything you need to know about VAT . 100% of any tax under-stated or over-claimed if you send a return that contains a careless or deliberate inaccuracy. Apply a Postponed VAT Accounting (PVA) adjustment. We use cookies to make your experience better. 6. Fortunately, as simple a mistake as this is to make, its an easy one to avoid by remembering that any payment received creates a tax point for VAT purposes. Because it was a genuine mistake made within the reporting threshold and within the last four years, she can correct it on her next VAT return by adjusting the figure in box 1. Box 6 is not only FRS turnover alone, which some sources state it is. To save you time on applying the reduced 12.5% VAT rate for every transaction, Xero enables you to set up default rates. Both the flat rate scheme and Making Tax Digital are recent changes that have transformed VAT treatment for small businesses. On my calcs if we take 5k net value of work done - gross value 6k the flat rate vat payable is 990 of the 1000 being billed - so leakage is only a tenner so i don;t see what the issue is here !! 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. 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