I do not believe that QB really understands the flat rate scheme. If you tick the flat rate option in settings, it will (they say) get the VAT return right. But, if you have set up the expense codes as 20%S (ie standard rate) in the chart of accounts, your accounts will be wrong as QB will apply normal VAT rules to the accounts (ie net to expense code, VAT to VAT control).
The guys on the support line don’t understand flat rate VAT and their default answer is that you need to speak to an accountant or HMRC to decide which VAT rate to apply in the chart of accounts. No, you don’t – this is a QB problem, not a VAT problem. The problem is not whether the rate should be exempt, zero, reduced, EC, standard or no VAT – it is that there is a flaw in the way that QB is set up. After a few lengthy calls with the support line, I’ve come to the conclusion that I need to set the VAT rate as 0%Z (ie zero) on expense codes that have VAT in them so that they are recorded on the VAT return but the full amount (ie including VAT) is booked to the expense code. At the moment I’ve got no idea what to do with sales codes – I suspect that I’ll set them up as 20%S (so that QB knows to apply the flat rate to them) and then do a journal adjustment to force the VAT control account to agree to the return.
I’d be interested to hear a response from someone at QB. I believe that this is a significant failing in the QB offering as a large number of businesses now buying QB so that they can comply with MTD will be small businesses which are on the flat rate scheme and will simply not have the expertise to unscramble the issues listed above.
