The tool enables users to compare VAT liabilities under Standard VAT - in which VAT is based upon the difference between VAT charged to customers and VAT paid on purchases - and the Flat Rate Scheme (FRS), in which VAT is paid at a fixed rate applied to VAT inclusive sales, with the rate being dependent on the type of business.
The tool works by looking at the last four VAT quarters and showing the VAT payable or repayable, in total and quarter by quarter, under the VAT scheme currently in use and comparing it with an estimate* of the alternative scheme.
Step 1.
Navigate to Reports > All Reports > VAT Comparison,
If you are currently using Standard VAT
The right side of the screen shows you your turnover in the last twelve months and compares it to the current FRS threshold over which you would not be able to join the FRS. Because the threshold is applied to your estimate of the likely turnover in the next twelve months this figure is only an indication of whether your business might be eligible to join the FRS.
The left-hand side of the screen invites you to select the last month of the year that you wish to compare (chose the last month of a VAT return) and the Flat rate % that would be likely to apply to your type of business.
Once the comparison period is selected the bottom of the screen shows you the twelve-month totals of the current VAT liability, the comparison FRS liability and the saving or cost in switching to the FRS, and then a quarterly breakdown, return by return, showing you the differences in the main VAT return boxes.
If you are currently in the Flat Rate Scheme
For the reasons given in the next paragraph, it is important that you enter the effective date of your VAT registration on the Tax section of the Settings > Organisation > Details & tax menu:
The VAT comparison screen layout below is very similar to the one described under Standard VAT above only now the right-hand side of the screen shows you the date from which you first started using the FRS and, if applicable, the date, twelve months from VAT registration, up to which you may apply the 1% discount to your official FRS %.
This is why it's important to make sure that you have entered the effective date of registration.
The 'Current Turnover' details on the right-hand side now compare the current twelve month's turnover from FRS registration, or its anniversary, with the threshold at which you must leave the FRS. The system provides a warning when you hit 90% of the threshold.
The left-hand side of the screen invites you to select the last month of the year that you wish to compare (chose the last month of a VAT return).
In a similar fashion to the Standard VAT screen, once the comparison period is selected the bottom of the screen shows you the twelve month totals of the current FRS VAT liability, the comparison Standard VAT liability and the saving or cost in switching to Standard VAT, and then a quarterly breakdown, return by return, showing you the differences in the main VAT return boxes.
More details the Flat Rate Scheme can be found here; with the section showing the various FRS percentages per business type here.
*Disclaimer: Our new VAT comparison tool estimates the potential tax owed when looking to change your VAT scheme. Please note that this is only an estimate and will depend on the recording of expenditure using the correct VAT rate, even if operating under the FRS. If you feel you would benefit from changing your VAT scheme, we recommend contacting HMRC or your accountant who will be able to provide advice specific to your scenario. Clear Books cannot be held liable for any loss (including loss of income) when changing VAT schemes based on this estimate.