The Flat Rate VAT Return

The Flat Rate VAT Return is similar to the standard VAT return but, as you need to apply to HMRC to use the flat rate VAT scheme, it is not the default VAT Return in Xero. The flat rate version of the VAT Return will only be generated if you have chosen a flat rate VAT scheme in your financial settings.

flat rate VAT return main screen

Financial settings

You need to set up a flat rate scheme in your financial settings (Flat Rate Cash Scheme or Flat Rate Accrual Scheme) to create a Flat Rate VAT Return. If you've done this, you'll see the flat rate version of the VAT Return.

If you haven't yet entered your organisation's VAT registration details in your financial settings, no VAT-related reports display in the Report Centre.

Financial Settings for Flat Rate VAT

Switching to a flat rate scheme

If you change to either of the flat rate schemes, this will significantly alter your chart of accounts (e.g. automatically updating your asset and expense account defaults to 'No VAT'). If you are already using Xero, wait till the end of the tax period to make the change in your financial settings.

If you change from a flat rate scheme back to a standard scheme, the chart of accounts will not be automatically changed back to how it was for standard VAT. You would need to make those changes manually.

Flat Rate Percentage

Enter the flat rate percentage that applies to your business, as provided to you by HMRC. Until you do this, the VAT figures for sales will not generate correctly.

flat rate VAT return fields

Flat Rate Adjustment required to balance VAT Account

Xero prepares the VAT return using the flat rate percentage you've entered.

If there is any difference on the last line of the return, Xero creates a journal for you for this amount. If you've selected a Flat Rate Adjustment Account in financial settings, your journal is posted for you. If you haven't, Xero creates a draft journal ready for you to add an account to, then post.

Image of the message at the end of a VAT Return: 'Flat rate adjustment required to balance VAT account.


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The VAT Return

Choose your VAT period and scheme

Create multiple VAT Returns if the flat rate percentage changes