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I think the problem is one of definitions.
The accounts are still done on the accruals basis. What HMRC means by gross receipts is your sales figure including 20% VAT but reduced by the non-recoverable input VAT. This effectively brings the VAT bit down to the flat rate % being used.
Most of the bookkeeping packages happily tell you each quarter how much you have "saved" by being on the flat rate scheme (the difference between 20% on sales and the flate rate % being used). This is the amount HMRC deem "irrecoverable" and so can be journalled back to sales each quarter for annual accounts purposes. All the expenses are kept gross (inclusive of VAT) and the VATaccount creditor goes back to £nil once the liability has been paid.
Perhaps some figures may help....
If your sales are £1,000+VAT the gross receipt (HMRC speak) is £1,200
Using a flat rate of 14.5% the VAT payable to HMRC is £1,200*14.5% = £174
The irrecoverable bit is £200-£174=£26
If you journal the £26 from the VAT account to sales your bookkeeping will show sales of £1,000+26 = £1,026 which is the same as your VAT inclusive sales of £1,200-the flat rate % payable of £174 = £1,026
Apart from the quarterly journal, everything stays exactly as a normal VAT business for accounts purposes - except VAT features in the figures.
I hope this helps a little. I have tried to explain the idea of the quarterly journal to a couple of our clients using flat rate but they just let me do it for them. Overall, the scheme is really simple for small businesses and the horror stories on the internet I have come accross just don't understand how accounts can include VAT when for 30 years we have been made to remove all traces of VAT from trading figures.
Edited at 19 Jun 2012 10:34 PM GMT
Edited at 19 Jun 2012 10:35 PM GMT
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