Can someone explain how flat rate VAT works please

[GrumpyOldBag]

I thought it was pretty straightforward, but have just received notification from my accountant that I owe HMRC more VAT for the last quarter than I charged my clients. I'm wondering if he's made a mistake.

The flat rate for my industry is 12%.

So I assume that, let's say I invoiced a total of £5,000 + £1000 VAT to my clients, I would be paying HMRC a VAT bill of £600.

Is that not how it works?

Thanks. (I know it's charging this new tax year, but it hasn't changed yet)

[TimelineOfEvents]

Total sales times the flat rate.

So on £6000 it would be £840

[hamandmustard]

Timeline event- Are you sure?

You pay 12% of the total income including VAT- so 12% of £6000 which is £720.

[hamandmustard]

It is only changing for some businesses- on a 12% rate with £5000 in a quarter you may well not fall under the new rates

Limited cost traders can still use the Flat Rate Scheme, but their percentage will be 16.5%. So if they sell £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%). A limited cost trader is defined as one that spends less than 2% of its sales on goods (not services) in an accounting period.

[TimelineOfEvents]

Yes, sorry. I used 14% which is my clients flat rate out of habit

[ClashCityRocker]

I wonder if he made a mistake last quarter and is correct it on this quarter's return. But yes, you shouldn't be paying out more VAT than you've actually charged your clients.

Unless you have exempt income, which is included in the calculations? You haven't started renting out a property or something?

[GrumpyOldBag]

Thanks for the advice everyone. ClashCityRocker is right - it turns out he made an adjustment this quarter to make up for a shortfall the previous quarter.

I now have to check if I'm better off on 16.5% or reclaiming the full VAT ...