My client is operating under the flat rate scheme using the rate of 10.5% (the company isn't classed as a limited cost trader). One of their customers recently went into liquidation, leaving some significant bad debts. Upon reading HMRC's guidance on the flat rate scheme (notice 733, section 14.1 https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-... ), I discovered that VAT on bad debts can actually be claimed using the standard rate, rather than the flat rate.
I understand that when filing a flat rate VAT return on Quickbooks, sales invoices are posted using the standard 20% as usual, then Quickbooks automatically applies the flat rate percentage to the VAT return. This means that if I post a credit note against these bad debts, then Quickbooks will apply the 10.5% rate to these credit notes on the VAT return, rather than the 20% which is allowed.
Does anybody know how I will be able to change this so that Quickbooks picks up VAT @ 20% on the credit notes, rather than the flat rate?
Any help will be much appreciated!
I haven't signed up for MTD just yet, but will need to do so in time for the next VAT return, which is for the quarter ending 31/07/19.
Hello there, @AccountantSam.
I'd be glad to help share some information so you'll be able to record your transactions accordingly.
You can create/record a journal entry or set up a VAT rate of 20% so you'll be able to apply this to the credit note. However, I would highly suggest contacting HMRC about this to ensure that the scenario of bad debt your client is having, applies to the article from HMRC.
On the other hand, for further details and for your future reference about VAT, you can may check this article: VAT.
Our doors are always open here on the Community page, stay posted if you have any other questions about the value-added tax. I'll always be here to help you!