Commentary

V7.232 Flat rate scheme—other matters

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.232 Flat rate scheme—other matters

Part V7 Tax planning | Commentary

V7.232 Flat rate scheme—other matters

The points below should also be taken into account when dealing with the flat rate scheme.

Basis of calculating turnover

There are three methods that can be used to calculate turnover in a relevant period – the basic turnover method, the cash-based turnover method and the retailer's method. Once adopted, a method should normally be used for at least 12 months.

The basic turnover method will be based on sales made with a tax point in the relevant VAT period (ie date of invoice or receipt of payment, whichever happens sooner) and will usually be based on invoices raised. See Example 10.

The cash-based turnover method is based on supplies for which a business has been paid during a period and can benefit a business that gives extended credit terms to its customers. The basic rules of the cash-based turnover method are the same as for cash accounting.

The retailer's turnover method uses daily gross takings as the basis for calculating its sales value.

Dealing with acquisitions from EU countries

Under normal accounting arrangements, a taxable business will import goods from other EU countries without VAT being charged and will then apply the reverse charge calculation by accounting for output tax in Box 2 of the return, and claiming the same amount of input tax in Box 4.

For a business using the flat rate scheme, the Box 2 entry will still apply but there will be no opportunity to reclaim input tax in Box 4. The only exception to this

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