Set up and manage the Flat Rate VAT Scheme in QuickBooks

Once you’ve confirmed you’re eligible for the scheme and want to use it in QuickBooks Online, you can enable it in your VAT settings.

To switch on the FRS in QuickBooks:

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

QuickBooks calculates your VAT automatically using the flat rate percentage when the scheme is enabled.

• Box 6 on the VAT return includes gross sales (including VAT).
• The VAT due (Box 1) is calculated by multiplying the flat rate percentage by the Box 6 amount.
• You don’t need to use a special VAT code—just enter transactions as usual.

Example: If your gross sales in Box 6 are £1,000 and your flat rate is 12.5%, the VAT owed to HMRC is £125 (1,000 x 0.125).

Once a VAT return is submitted under Making Tax Digital (MTD), you can’t edit or delete the included transactions. Instead, you’ll need to reverse and re-enter the transaction.

To correct a filed transaction:

1. Open the Transaction journal for the original entry.
2. Create a journal entry with reversed debit and credit amounts from the original transaction. Use the same accounts.
3. Apply the relevant VAT code (e.g. 20.0% S) to the same line item.
4. Create a new transaction with the corrected information.

This ensures accurate VAT records and compliance with MTD rules.

If you need to correct the VAT due on sales (Box 1), you can add an adjustment in QuickBooks. This won’t affect Box 6, as it includes gross turnover and remains unchanged.

To adjust Box 1:

1. Go to Taxes and select VAT.
2. Find the return you want to update and select Prepare return.
3. Next to Box 1, select Adjust.
4. Choose the correct Adjustment account and enter the adjustment amount.
5. Select Save, then confirm the change by selecting Go for it.

If HMRC updates your flat rate percentage partway through a VAT quarter, you’ll need to split the reporting period accordingly.

What to do if your flat rate changes during a VAT period:

1. Run the VAT 100 report using the old rate up to the date before the rate change.
2. Note down any amounts already paid or invoiced at the old rate.
3. Update your VAT settings in QuickBooks with the new flat rate percentage.
4. Run the VAT 100 report again, covering the full VAT period using the new rate.
5. Adjust Box 1 on your return so it reflects the correct VAT due for both rates.

You don’t need to update Box 6, as it reflects gross sales and isn’t affected by the rate change.

You can choose between the accrual or cash method when using FRS. This affects when VAT becomes due.

Accrual basis

Apply the flat rate to all VAT-inclusive sales with a tax point in the VAT accounting period (typically the invoice date).

Cash basis

Apply the flat rate to the VAT-inclusive sales that you’ve received payment for within the accounting period.

You can leave the Flat Rate Scheme if your business circumstances change or you become ineligible. This can be done at any time, though it usually happens at the end of a VAT period.

Before leaving, keep in mind:

• You must notify HMRC in writing.
• HMRC will confirm your official leaving date.
• You must inform HMRC of any major business changes (e.g. ownership or structure).
• HMRC may remove you if they find errors or ineligibility.
• You can only rejoin the scheme after 12 months.

To update QuickBooks after leaving the scheme:

1. Go to the Taxes section and select Edit settings.
2. Untick the FRS checkbox.
3. Select Standard or Cash as your new VAT accounting method.