UK - Flat rate tax schemes Setup

[isklerius]

Maybe someone with UK Flat Rate scheme could explain to me how it is set up in a new way.

Did not upgrade the manager for a year, but just did that yesterday and now trying to file VAT, but I can see that setup changed completely.

So I am on a flat rate 16.5%, which means I charge the customer appropriate UK VAT (20% for UK, 0% for everything shipped outside (VAT charged in place of consumption)) but still pay 16.5% regardless of the actual VAT charged to the customer.

A) if I sell an apple for £100 in the UK, I add 20% VAT and sell to the customer for £120. In the tax return, I would file 16.5% for VAT Tax (calculated of £120) = £19.8 goes to the tax man.

B) if I sell an apple for £100 to Australia and it will be consumed there, I add 0% VAT and sell to the customer for £100. In the tax return, I would still file 16.5% for VAT Tax = £16.5 goes to the tax man. (fortunately not selling much oversees as its not really beneficial for me on flat rate)

A scenario in the new world with multiple rates 1) 20% 2) -0.2% works fine
B scenario, on the other hand, does not work. If I add 0% with a Name and 16.5% without a name as per the user guide, it would still add 16.5% to the invoice. (Old way used to be setting 0% VAT and when 16.5% flat rate, which was working fine)

This is converted 16.5% code after the upgrade, and to NOTE it is converted to account that 16.5 will be calculated from total £120 and not £100 therefore its 20% - 0.2% = 19.8% (checked on excel it works, but not obvious).

Invoice is correct

For 0% I can’t find a way to set it up if I set 0% it greys out, and I can set anything after

The invoice is not correct should not have shown a line without a Name?

Tax transactions are both 16.5% correct, but a total sale on 0% Rate is not

I am probably just missing something. How do you set 0% rated VAT with a flat rate at 16.5%?

[isklerius]

Did anyone get it working for UK Flat Rate?

Setting up with the above I got it working for Box 1 - 5.

Box 6 - total sales are not right.

1. It does say in the text that it should be total sales without VAT which was 100 + 100 = 200, but we got 200.2, tried removing reporting on -0.2 with no effect, so it’s wrong.
2. However, Box 6 is under special rule when flat rate, which should show the total, including VAT
   

As I understand from another comment in the forum, these reports are maintained by local groups. Who is maintaining UK localisation?

[Tut]

I cannot reproduce any of your screen shots using your exact setup. What actual version number are you on? And where did you get the idea that the second line of your tax code setup should be -0.2%? Also, where did you get the idea that you are supposed to remit 16.5% VAT to the tax authority on a sale for which you charged no VAT?

[isklerius]

1. Version: 22.3.74 Upgraded from 21.x.x

• What exactly you can’t reproduce? Amounts in VATs?
• Could it be due to my upgrades and that it is not fresh business?
• I think I also got duplicated tax payable accounts now (Used to be one but was renamed to VAT tax payable)

2. “Where did you get the idea that the second line of your tax code setup should be -0.2%”

• It got converted from Flat Rate to these two lines automatically on the upgrade, so literally, manger.io gave me that idea (would never figure that out myself)
• I thought initially it was wrong, but later checking end result understood that it is because the flat rate is calculated off the total (100 + 20% VAT = £120 * 0.165 = £19.8)

3. “Also, where did you get the idea that you are supposed to remit 16.5% VAT to the tax authority on a sale for which you charged no VAT”

• From my accountant
• Also very clear in HMRC (UK tax man website)
  How to fill in and submit your VAT Return (VAT Notice 700/12) - GOV.UK (section 4.1)

[Tut]

@isklerius

Version: 22.3.74

You are hundreds of versions behind. None of the active forum members can address such old versions. While investigating your issue, I discovered there have been program changes resulting in different displays from what you showed.

@isklerius

think I also got duplicated tax payable accounts now (Used to be one but was renamed to VAT tax payable)

You cannot use the built-in Tax payable account, even if you rename it. That is a placeholder. You need to create your own tax liability account, as explained in the Guide about tax codes.

@isklerius

It got converted from Flat Rate to these two lines automatically on the upgrad

I have no explanation for that.

@isklerius

Also very clear in HMRC…

OK. That’s unusual for a flat rate scheme, but I won’t argue with HMRC. Clearly, you would not want to employ the flat rate scheme if you were making a large fraction of your sales under zero-rated categories. If I’m interpreting the HMRC guidance correctly, there is virtually no benefit for using the flat rate scheme; there are large disadvantages if you sell much in the way of reduced rate, zero-rated, or exempt goods and services. You are also really missing out if your business is dominated by sale of inventory, regardless of tax rates.

As a final note, I will observe that if you’ve properly localized your business for the UK by selecting your country under Business Details, all the necessary tax codes should already be there. You should not have to set up any tax codes beyond ensuring they are linked to a tax liability account other than the placeholder. But let’s see what other UK users are saying. (It’s sometimes difficult to replicate realistic scenarios in a test business.)

[isklerius]

@Tut

eally missing out if your business is dominated by sale of inventory, regardless of tax rates.

1. Version - yes, you are right … annoying GitHub the last version stopped being maintained in May, will need to figure out a new way of installing it now.

2. “You cannot use the built-in Tax payable account, even if you rename it. That is a placeholder. You need to create your own tax liability account, as explained in the Guide about tax codes.”

• It is the default setup, for all taxes, and in UK VAT is the only tax. Can you point me to a specific guide about tax codes about it? I am obviously missing something and was using it incorrectly for a very long time.

3. Yes, it is not something you would opt-in if doing inventory sales for foreign buyers. I don’t, therefore it makes sense to me, but occasionally I have these and used to be able to handle it in a manager.io with no issue.

Will try to figure out how to get the latest version this week. Hopefully, it was due to me still being out of date.

[Tut]

Download from the website, not GitHub, which only serves as the archive.

There is only one comprehensive Guide about tax codes.

[isklerius]

@Tut

There is only one comprehensive Guide about tax codes.

Yes and it all states to use default tax payable

What I am missing?

[Tut]

The Guide does not say, anywhere to use the default account. In the section about flat rate schemes, it explicitly says, " Select the tax liability Account where assessed taxes will be posted." The illustration happens to show a tax liability account named Tax payable. That could be the old automatic account converted to a standard liability account by a previous update, retaining the same name. Or it could be a new account given that name.

The instructions for flat rate schemes also say, “To add a flat rate tax code, begin a similar procedure as for any other custom tax code.” And when you look at those instructions, you are told, " After the Rate is entered, another field appears, where you can select an Account from those tax liability accounts already created [emphasis added]. In other words, you must create an account before you can use it.

@isklerius

What I am missing?

Perhaps you missed the Note and Caution in the first and most important section of the Guide on setting up tax liability accounts:

Based on the information you provided, you may be operating with a tax liability account that was converted during a prior update without your knowledge. The way to check is to go to Settings > Chart of Accounts and delete the name of your tax liability account. If a greyed-out Tax payable appears, you are using the automatic placeholder with a different name. That must be replaced. If nothing appears after deleting the name, you are using a standard account as you should.

[isklerius]

Thank you!

[isklerius]

So I did update it to the latest now, thought would need to learn how to run AppImage as a service on a Linux server, but fortunately found old school packages are still there, just under a slightly different URL. Which is great thank you, Lubos, for keeping it. Will definitely look into new packages later to keep up to date.

However, the flat rate is still the same, got a brand new business and chose the United Kingdom to get default rates:

Got these defaults, with one, I guess, sample flat rate Photography, which would fall under 11% flat rate. By default, it is disabled. But as you explained, it is posting correctly to the normal account VAT Payable, which was there already and not to Tax Payable, which is deprecated.

But this is setup the same way as mine got upgraded before:

Enabled it and put an invoice with the photography flat rate

All good and correct. Expensive apple but with the correct 20% VAT on the invoice.

I also got a VAT calculation sheet available.

Unfortunately, it is all Zero now. But easily fixed by adding:

Reporting category at top level, which gives Total Value Box 6

And also need to set both Reporting Categories on each line:

The result is:

Result

• Box 1, 3, and 4 are correct as it is 11% off £120 = 13.20
• Box 6, though, is not correct
  a) if we expect what label states it should be £100
  b) if we expect what HMRC tells us, it should be £120

With overseas sales at 0% but still 11% flat rate, same as reported before, unless I am not setting it correctly

O gets greyed out, so can’t set it for mane use and the second line for adjustment as per Photography.

Can see above that it simply added 11% with no tax line because it has no description

VAT Worksheet

Result:

• Tax is correct 100 + 120 = 120 * 0.11 = 24.20 Flat Rate
• Box 6 still has this 6.8 from the sample photography flat rate 206.8 not correct either way one interprets HMRC site.

I might be just missing something, but I don’t think right now UK VAT Calculation sheet for Flat Rate works.

Is anyone from the UK on a flat rate?

[isklerius]

@Tut @lubos
I now found VAT Calculation Worksheet is an obsolete Extension now.

What is the proposed future and alternative for this? There must have been a few threads in the forum, but I can’t find anything.