VAT - Flat rate support

Pearl supports the Flat Rate VAT scheme in the UK (FRV).

Setting up

To set your account up for Flat Rate (FRV), follow these steps:

  1. Create an FRV adjustments account as a current liability using Accounts : Setup : Chart of accounts
    We recommend a sales code (4000 to 4999) if you are expecting to see a benefit from the scheme.
  2. Go to Setup : Options : Finance
  3. Choose Standard or Cash based as your VAT scheme
  4. Select "yes" for flat rate VAT
  5. Choose your business sector. The flat rate VAT percentage will be added for you.
  6. Select your FRV adjustments code
  7. Save changes

This will make sure that Pearl acts in the correct manner for Flat rate. For more details on the Flat Rate scheme, see the HMRC information.

Purchase Invoices

These are entered at Accounts : Suppliers : Quick invoice/credit

Purchase tax will be calculated as normal, but assigned to the expense (or purchase) account instead of the Purchase Tax Control account. This ensures that the tax on purchases does not appear on your VAT return.

Purchase Orders

FRV is not currently supported for receiving Purchase Invoices against Purchase Orders. Please raise a quick supplier invoice instead.

Sales Invoices

Sales invoices will be raised with net and tax figures showing for your customers in the usual way. it's only when the sale is invoiced that FRV adjustments are made to post the correct values into your accounts.

The Tax inclusive sale total is used to work out the tax payable, using your FRV rate (eg 7.5%). So if your sale is £100 + 17.5% VAT, then the taxable turnover is £117.50.

The FRV tax is 7.5% of £117.50, ie £8.81.

£8.81 is posted to your Sales tax control account, to appear on your VAT return, and an adjustment of £8.69 is posted to the FRV adjustment account to balance the entry, and also allow you to see the benefit of being on the FRV scheme. In this example the FRV adjustment account has been set to 4000.

The Sales invoice:

Flat rate scheme invoice

And the ledger entries created:

Flat rate Vat journal entries

 

Quick sales invoices

FRV is not currently supported for quick sales invoices entered using Accounts : Customers : enter quick invoice (these menu items will not be available if FRV is turned on).

Non taxable income

Sometimes you'll want to enter income that's not to be included in your Flat rate turnover calculation, such as bank interest, and anything else that is not classed as "business supplies".

  1. From the Accounts:Banking area, click to enter a Bank receipt.
  2. Choose a bank account and a suitable account code.
  3. Choose Not taxable from the tax drop down menu.
  4. Enter the total amount.
  5. Save

Other income (not invoiced using a sales invoice)

If you are receiving income that is to be included on your VAT return as taxable turnover (but you don't want to raise a sales invoice), then enter a bank receipt as follows.

  1. From the Accounts:Banking area, click to enter a Bank receipt.
  2. Choose a bank account and a suitable account code.
  3. Choose the taxable option from the tax drop down menu, which will use your Flat rate percentage.
  4. Enter the total (gross) amount.
  5. Save

VAT return

If your system is set to use Flat Rate Vat, then Pearl will use the Flat Rate VAT return. Procedure is the same as for non Flat rate scheme. More information is here.

Note that you will need to calculate the value of Box 2 manually since Pearl will allocate all Purchase Invoice tax to the FRV adjustment code. Using the advanced filters in the General Ledger report it's easy to find out the total net value of any EC purchases on T7 or T8 tax codes should you need to to.

For more information on VAT and filling out your return, please consult your accountant!

Cash based and Standard (revenue) based VAT

Pearl handles both Cash based and Standard based VAT accounting with the Flat Rate scheme. Choose your settings on the Setup:Options:Finance screen.

The choice of Standard or Cash based does not affect your day to day transactions, it only affects what is shown on the VAT return. Since Pearl uses transaction based VAT reconciliation (rather than period-based), changing between Cash based or Standard based VAT is easy to manage.

With Cash based scheme set, the VAT return will include all Bank Receipts (BR) and Sales Receipts (SR).

With Standard scheme, the VAT return will include all Bank Receipts (BR) and Sales Invoices (SI).