VAT flat rate scheme: HMRC change tack on bank interest

In the wake of a recent case, HMRC have changed their instructions on whether bank interest should be included when you're calculating the income on which you should pay VAT if you're using the flat rate scheme.  This income is called "VAT flat rate turnover".

Previously bank interest had to be included as part of a business's VAT flat rate turnover.

HMRC now say it should not be included.

What has changed in FreeAgent?

We've updated the way FreeAgent works out your flat rate turnover so that it will not include any bank interest dated on or after 1st August 2011.

What about interest before that date, can I reclaim the VAT I've already paid?

HMRC haven't issued guidance on whether you can do this and our VAT expert has advised that it's up to each business owner to decide whether he/she would like to try and reclaim this VAT from HMRC.

If you do want to try and reclaim this VAT, check out our knowledge base article on what journal entries to post to your FreeAgent account.