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Changing your flat rate percentage in QuickBooks Online

by Intuit Updated 1 year ago

If you’re registered for the Flat Rate VAT Scheme, it’s important to keep an eye on your flat rate percentage. You may need to check it after your first year of registration and if your business structure changes. In this article, we'll explain when to check your flat rate percentage and how to change it in QuickBooks Online.

The Flat Rate Scheme is a way for businesses to pay VAT to HMRC. Under the scheme, businesses charge VAT at a set percentage of their total sales. Here’s a list of flat rates for different types of businesses set by HMRC.

If you use this scheme, you pay a fixed rate of VAT to HMRC. The advantage of this is that you get to keep the difference between what you charge your customers and pay to HMRC. However, you can’t claim back any of the VAT on your purchases, unless you buy a capital asset that’s valued at £2,000 or more, including VAT.

Your flat rate is determined by the type of business that you operate. Different businesses have different VAT rates, so it's important to make sure that you apply the correct percentage for your business. Otherwise, you may end up overpaying or underpaying VAT. 

If your business changes, check HMRC's guidance to make sure you're still paying the correct percentage.

If you’re in your first year of VAT registration, you can get a 1% deduction in your flat rate percentage. This means that you can take 1% off the flat rate you apply to your turnover. The reduced rate will last until the day before your first anniversary of becoming VAT registered.

For example, if you’d usually pay 11% flat rate, you can reduce this to 10% in your first year of VAT registration. After that, you should be paying 11% and should update this information in QuickBooks Online. 

To check your VAT registration date in QuickBooks Online: 

  1. Go to Taxes and select VAT
  2. Select Edit VAT, and then Edit settings.
  1. Go to Taxes and select VAT
  2. Select Edit VAT, and then Edit settings
  3. Tick the box that says Flat Rate Scheme (FRS).
  4. Enter the rate percentage and your tax registration date. 
  5. Select Save.

You can only have one flat rate percentage in a single VAT period. The flat rate percentage can change from time to time–and if it does, you’ll need to make sure you adjust your VAT return accordingly. 

According to HMRC, businesses will have to use the same value for their VAT rate until the end of the VAT period, and then use the new rate in the following period. Let’s take a look at what you need to do in QuickBooks if the flat rate changes mid-way through a tax period. 

1. Run the VAT 100 report with the old flat rate 

The first thing you need to do is run the VAT 100 report with the old rate from the beginning up until the last day of the VAT period. This will give you an accurate picture of how much VAT is due. Once you have that figure, you can then work out the new rate for the remainder of the period. Make sure you apply the new rate from the first day of the new period–any earlier and you’ll end up overpaying VAT. 

2. Take note of the amounts you’ve already paid or invoiced at the current rate

It’s important to stay on top of your VAT obligations. Keeping track of the amounts you’ve paid and invoiced at the current rate is one way to do this. Take note of the amounts before changing the rate in your VAT settings. 

3. Adjust your VAT return 

Make the necessary adjustments to your VAT return to help ensure that you’re correctly accounting for all VAT payments and invoices. Adjust Box 1 to show the correct VAT amounts due. You don’t need to adjust Box 6 as this is the gross amount of sales and isn’t affected by the rate change.

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