Can someone help me clear up a very confusing issue.
I am on the flat rate scheme for VAT meaning I charge 15% on my services, and pay 9.5% of my total (VAT inclusive turnover) to HMRC.
My accountant tells me that I have to include the difference in the VAT I charge and the VAT I pay as taxable income. This seems strange to me, as surely the difference is to offset the fact that I can not reclaim VAT I have paid on purchases.
My accountant thinks that I can expense VAT inclusive amounts on my tax return, but surely this would mean I had to keep accounts of all my VAT income and expenses - defeating the whole purpose of the flat rate scheme.
I hope this all makes sense - in short, how do I account for VAT purchases and expense in my tax return when on the flat rate VAT scheme?
Thanks!
James
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