A bit more about how FreeAgent handles the UK's VAT flat rate scheme.
Remember that on the VAT flat rate scheme, the VAT return shows output VAT only.
Your business can't reclaim any input VAT except on the purchase of capital assets costing over £2,000.
FreeAgent will identify these for you so long as you post the bill, or explain the bank payment, as a purchase of a capital asset.
And if you enter input VAT by mistake on other payments, don't worry, it won't put those on your VAT return.
Do be aware that when you're on the VAT flat rate scheme, FreeAgent will include all your sales income on which it works out the flat rate percentage (this income is called your "flat rate turnover"), including income that would otherwise be exempt from VAT or zero-rated for VAT.
HM Revenue's guidance on this changed in August 2011.
It used to be the case that bank interest received was part of the flat rate turnover, so FreeAgent used to include it:
Now HM Revenue say that bank interest shouldn't be included in the flat rate turnover.
FreeAgent will include in the flat rate turnover any bank interest dated before 1st August 2011.
Any bank interest dated on or after 1st August 2011 won't form part of your flat rate turnover.
HM Revenue have not issued guidance on whether you can reclaim VAT that you've paid in the past on your bank interest.
If you want to do this, seek advice from your accountant.
You can adjust your figures in FreeAgent for this by posting journal entries to debit code 819 VAT Charged and credit code 051 Interest Received with the amount of VAT you've paid on your bank interest. Date these entries the last date of your current VAT quarter.
There is, however, some income that shouldn't be included as part of your VAT flat rate turnover, such as sales of services outside the EU. To make sure that FreeAgent doesn't include it, explain the receipts as Other Sales Income, and choose N/A so that the income shows as outside the scope of VAT.
Remember, if your business joins or leaves the VAT flat rate scheme, you need to change the setting on the VAT return itself, for each VAT return.
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