What input VAT is recorded on a VAT return in the Flat Rate Scheme?

In the Flat Rate Scheme, a business pays a set percentage of its total sales as VAT and does not account for input VAT in the traditional manner. This means that when completing a VAT return under this scheme, the business does not reclaim input VAT on its purchases or expenses. Instead, the scheme simplifies bookkeeping and tax compliance by allowing businesses to calculate VAT based on their total sales and pay it directly to HMRC.

Option B reflects this fundamental concept of the Flat Rate Scheme: no input VAT is recorded on the return. This approach is designed to streamline processes for smaller businesses with turnover below a specific threshold, minimizing accounting burdens without the need to track input VAT from purchases comprehensively.

Options referencing input VAT based on total sales, only exempt sales, or only zero-rated sales misunderstand the essence of the Flat Rate Scheme, which eliminates the need to record these input VAT amounts. It focuses solely on the flat rate percentage applied to the business's overall sales, again simplifying compliance and reducing administrative overhead.