If your business is registered under the Flat Rate VAT Scheme, understanding how Sage Business Cloud calculates your VAT return is key to staying compliant and maintaining accurate records. How does the system work, and what should you expect when you're completing your VAT return?
Flat Rate VAT, A set fee for all to pay, Simple yet complex
The Flat Rate VAT Scheme simplifies your VAT accounting by allowing you to pay a fixed percentage of your VAT-inclusive turnover to HMRC. This rate is determined by HMRC based on your business type and may change over time.
Sage uses the flat rate percentage you entered when you first set up your VAT scheme in the software. You can verify or update this under Settings > Business Settings > Accounting Dates & VAT.
When using the Flat Rate Scheme in Sage Business Cloud, you have two options for how VAT is accounted:
Invoice-based accounting: VAT is calculated based on the date you issue or receive invoices.
Cash-based accounting: VAT is calculated when payments are actually made or received, aligning with the cash accounting method.
While Sage calculates VAT at the standard, reduced, or zero rate as usual, it adjusts the VAT due using your flat rate percentage when generating your VAT return.
Here's how each box of the VAT Return is calculated in Sage:
Box 1: VAT Due on Sales - This is the total VAT due on sales for the period and includes:
Your turnover from Box 6 multiplied by your flat rate percentage
VAT from the sale of capital assets (if you've reclaimed VAT outside the flat rate scheme)
Reverse charge VAT on standard or reduced-rated services purchased from EU suppliers
Box 2: VAT Due on EU Acquisitions (Northern Ireland only)
For businesses in Northern Ireland, this box includes VAT due on goods and related services bought from EU Member States under the Northern Ireland Protocol.
Box 3: Total VAT Due
This is simply the sum of Box 1 and Box 2.
Box 4: VAT Reclaimed - Includes:
VAT reclaimed on capital asset purchases outside the flat rate scheme
The notional VAT from Box 2 for EU acquisitions
Reverse charge VAT on EU service purchases
Domestic purchases within the flat rate scheme are not included here.
Box 5: Net VAT to Pay or Reclaim
This is the difference between Box 3 and Box 4 - what you owe to HMRC or can reclaim.
Box 6: Total Turnover and Other Outputs - This box includes:
The total value of your sales, including VAT (used to calculate the flat rate percentage)
Capital asset sales outside the flat rate scheme
EU service sales and supplies outside the scope of VAT
Services purchased from outside the EU where the reverse charge applies
Box 7: Total Purchases and Inputs - Includes:
Capital asset purchases outside the flat rate scheme
Total goods and services purchases
Box 8: EU Sales (Northern Ireland only)
Shows the value of goods sold to VAT-registered customers in the EU, excluding VAT.
Box 9: EU Purchases (Northern Ireland only)
Displays the value of goods bought from VAT-registered EU suppliers, excluding VAT.
The Flat Rate VAT Scheme offers a streamlined approach to VAT, but it's important to understand how Sage Business Cloud calculates each part of your return. By keeping your VAT settings accurate and reviewing your figures regularly, you'll ensure your submissions are correct and hassle-free.
If anything I've written in this blog post resonates with you and you'd like to discover more about How Sage Business Cloud Calculates Flat Rate VAT, or any other questions you may have about bookkeeping, it may be a great idea to give me a call on 01604 420057 and let's see how I can help.
Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.
You know what they say: if you want something done well ask a busy person!
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