A business uses the flat rate scheme with a rate of 12%. Its VAT-inclusive turnover for the quarter is £60,000, and it paid £2,400 of VAT on purchases. What VAT is payable?
Answer and explanation
Correct answer: A. £7,200
- Step 1: Under the flat rate scheme the flat rate percentage is applied to VAT-inclusive turnover.
- Step 2: £60,000 × 12% = £7,200.
- Step 3: Input VAT on purchases is not reclaimed under the scheme, so it is not deducted.
Answer
£7,200.
Why not the others: £4,800 deducts the input VAT of £2,400 from the flat rate amount, which is not allowed. £10,000 applies 20/120 to the turnover, which is the standard VAT fraction. £6,000 applies 10% instead of the specified rate of 12%.
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