Annual accounts - treatment of VAT

[staveleymum]

I hope there is an accountant or tax expert out there who can help me.

I am scratching my head over my annual accounts that have just been presented to me from our accountants. We pay a flat rate VAT scheme and our accounts show our turnover gross. Fine, but there is no reduction of the £20k plus that I have paid in VAT over the 12 month period. The expenditure is the usual stuff but there is nothing about the VAT paid. As a result my tax bill is much larger than I planned and have no way of covering it!! Surely there should be some record of this as it seems to me that I am paying twice for the income (VAT and income tax).

I have queried this with the accountants but they havent come back to me yet but I am so worried about it as I dont know where I am going to find the additional funds to cover our tax bill.

Thanks in advance

I am not an accountant. but I do run a Ltd company and I have an accounting firm do all my accounting for me. It sounds like your accountants are not doing a very good job for you. They should have helped you with tax planning. You do realise that VAT is not tax deductible? It's a tax you collect on behalf of HMRC.

Depending on what type of company you run, it might be a good idea to get a second opinion on the final tax bill. Peopleperhour is a good place to look.

The accountants have cocked up big-time. All the income and expenses on the accounts should be net of any applicable VAT.

How have the accounts been prepared in previous years?

I have already sourced a new accountant!

My query is say I earnt £100,000 gross. I have then paid £15,000 in VAT from this income. Should I really be paying tax on £100,00 or should it be on £85,000. Looking at my accounts its based on £100,000. Is that right?

I haven't even looked at previous years - so if they have cocked up this years I suspect it goes back a number of years. If they have then I can see a large professional negligence case coming their way...

This is a useful link, you need to look at section 7.8.

But in summary, yes the figure should be net of VAT.

Figures can be gross, but then the VAT paid should be shown as an expense, thus you are taxed on the "net" income.

Are your accountants actually qualified/regulated? Lots aren't as the word "accountant" isn't protected in the same way as doctors, solicitors, architects, financial advisors, etc., so literally anyone can call themselves an accountant or start an accountancy practice.

From the HMRC link that Sammy posted above:
It is expected that accounts for businesses who are using the scheme will be prepared using gross receipts, less the flat rate VAT percentage, for turnover and that expenses will include the irrecoverable input VAT.

So yes, they show the gross income but deduct the flat rate VAT amount. Your purchases/cost of sales include the VAT. This is different from standard accounting where everything on the income statement (profit & loss) is excluding VAT.

(I'm an accountant. A proper qualified one )