Value Added Tax

Determining the flat rate turnover

Produced by Tolley
  • 14 Oct 2021 19:49

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Determining the flat rate turnover
  • Turnover methods
  • Basic turnover method
  • Cash based turnover method
  • Retailer's turnover method
  • What should be included and excluded from turnover?
  • What should be included
  • What should be excluded
  • Including specific transactions in the turnover

Determining the flat rate turnover

This guidance note provides details of the methods that can be used by a business to determine its turnover for the purposes of applying the VAT flat rate scheme. There are three turnover methods that can be adopted depending on the nature of the main or sole business activity undertaken by the business.

It is very important that the business calculates its flat rate turnover accurately. If the business incorrectly includes items that are not part of its turnover in the calculation then it will pay too much VAT. Alternatively if the business incorrectly excludes items from its flat rate turnover then it will pay too little VAT, and HMRC could issue an assessment and levy a penalty and / or charge interest.

Turnover methods

There are three methods that can be used to calculate the turnover.

Basic turnover method

This method is recommended for businesses that generally supply goods and services to other VAT registered customers. If a business is able to operate on an invoice issued basis this scheme would be the most appropriate. The business should apply the flat rate percentage to all relevant turnover made during the VAT return period. The business should apply the normal tax point rules applicable to the goods / services supplied in order to determine when the sale should be recorded on a VAT return. See the Time of supply (tax points) guidance note for more information on tax points.

See Example 1.

Cash based turnover method

This is the flat rate scheme equivalent of cash accounting. VAT is accounted for at the time the customer pays for the goods / services supplied rather than when the business supplies the goods or services. A business may benefit from using this scheme if customers are either offered extended credit terms or habitually pay late for the goods / services received. The business should apply the flat rate percentage to supplies where the customer has paid for goods /

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