About the Flat Rate Scheme

The VAT Flat Rate Scheme (FRS) is a method of accounting for VAT. Under this scheme, a business will charge VAT to its customers as normal but will pay HMRC a set percentage of the total sales (inclusive of VAT) rather than offsetting the VAT it pays out to suppliers.

It can be beneficial for businesses, such as consultants who do not incur many expenses which are subject to VAT, because they won't lose out on the VAT that they would otherwise be able to reclaim. It can also make life easier as VAT returns are simpler to complete on this scheme.

There are certain restrictions for joining the flat rate scheme and you'll need to apply to HMRC before you can use it, so it's a good idea to talk this over with a finance professional first!

Setting up the Flat Rate Scheme in Pandle

If you didn't enter your VAT details whilst setting up your Pandle account, you use the Company Settings menu to enter them at a later date.

Click the 'Settings' icon in your Pandle navigation bar, and select 'Company Settings' from the menu.

Then select the 'Financial Info' tab. Click the box next to 'Is the business VAT Registered?' so that a tick mark appears.

Scroll down and enter:

  • Your VAT registration number. You only need to enter the numerical values, and not the prefix (which will be either GB, or XI if your business is in Northern Ireland). If you do include the prefix, Pandle will automatically remove it for you to prevent any potential errors.

  • VAT Registration Date

  • How often you must make VAT submissions. This is normally quarterly, though some VAT accounting schemes have other requirements. For instance, businesses registered on the VAT Annual Accounting Scheme can make submissions annually.

  • Click the check box if your business bought from or sold to EU VAT registered businesses before 1 January 2021. Leave the box blank if this does not apply to you.

  • Click the check box if your business uses the Reverse Charge. Leave the box blank if this does not apply to you.

Click the 'Vat Schemes' button.

The 'VAT Schemes' window will list any VAT schemes already entered into Pandle. Click the 'Add VAT Scheme' button to enter a new scheme.

Enter a start date for your new VAT scheme.

Under 'VAT Scheme' use the dropdown menu to select a type of VAT scheme. There are two methods available for using the Flat Rate Scheme.

Important: You must apply to HMRC to join the Flat Rate Scheme, and should do this before updating your settings in Pandle.

Flat Rate - Invoice Based

With the Invoice Based system, the VAT becomes due at the point you invoice your customers, instead of the point you get paid.

Flat Rate - Cash Accounting

The VAT becomes due when payments are made rather than when invoices are entered.

Then enter the percentage rate of VAT which applies to your industry. You can find this information on the HMRC website.

Why can't I update my VAT registration date?

  • Businesses using the Flat Rate Scheme get a 1% discount during their first year of being VAT-registered.

Pandle will use the VAT registration date you enter into Pandle to calculate this for you, and will apply it automatically where eligible.

To make sure you don't accidentally claim the discount for longer than allowed, you won't be able to change your VAT registration date in Pandle if you have an existing VAT return under the Flat Rate Scheme.

If you do try to update the registration date, Pandle will show a notification message, so you know what’s going on.

How Flat Rate VAT is recorded in Pandle

When creating your invoices and entering expenses you still need to use the standard 'ST' VAT code as normal.

The flat rate percentage is applied at the point you run your VAT return. Pandle will calculate the amount you owe based on your flat rate percentage, and transfer it into the category 'VAT Owed to HMRC'.

You will also notice another category called 'Difference in Flat Rate VAT'. This category will show the difference between the VAT which is due on the Flat Rate Scheme compared with the VAT that would have been due on the standard VAT scheme.

  • If it's a credit balance, it means you are benefiting from using the FRS

  • A debit balance means you are losing out on the Flat Rate Scheme

This helps you manage how tax efficient your business is.

You can only see this information if you use VAT code 'ST' on the relevant expenses.

If you use tax code 'NV' (No VAT) on your expenses, then the VAT return will still calculate correctly, but you will not be able to see the difference in the liability between the Flat Rate and Standard Schemes.

Related articles

Setting up VAT in Pandle

Running a VAT return

Submitting your VAT returns to HMRC

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