Having said that, that's just the IR's recommended treatment. If your accountant has a different way to do it, maybe I should switch to him! And I'm not accountant, so please don't take my word for any of this ... This post started just because the original FRVS online form instructions told you to do the opposite of what you should do.

Invoices £10000
VAT@17.5% £ 1750
Gross £11750
FR VAT@ 9% £ 1057.50
Difference £ 692.50

The difference NOT being subject to CT. Is that as you read and understand it? It is my belief that this can go straight in your pocket and is one of the benefits of a small business being on the flat rate scheme. I called my accountant this afternoon and he confirmed this again to me. Once again thanks for your comments

As to a definitive document ... There's this from a few years ago: http://www.accountingweb.co.uk/item/139507

That gives the context for reading this which says:

Computation of trading profits
...
Expenses will probably be shown inclusive of VAT as it is irrecoverable (similar to a business not registered for VAT), and it is likely that turnover will be shown net of the flat rate VAT payment. You may however find that the flat rate VAT payment is shown as a profit and loss expense rather than deducted from total turnover.

There's also a worked example.

You should also read this which says:
It is expected that accounts for businesses who are using the scheme will be prepared using gross receipts, less the flat rate VAT percentage, for turnover and that expenses will include the irrecoverable input VAT.

For both VAT and income tax purposes, there is a requirement to keep a record of sales and purchases. But, for businesses using the scheme, that record does not have to analyse gross, VAT and net separately. The records need only be complete, orderly and easy to follow.

Interesting comment above. I am FR registered to 9% and charge the standard 17.5%. I questioned the difference which I call VAT profit to both my accountant and the tax offfice and they both told me that this additional profit is NOT subject to CT. Who is right and who is wrong and where is the definative document to reflect this. I would be interested to hear your thoughts. Many thanks.

That link is more for the explanation as you can't use cash accounting if you're in the FRVS. However, the FRVS has its own cash-based turnover method. Hooray! Read sections 8 and 9 here. Some of the subsections of section 9 look a little complicated, mind ...

I do have a little question - if something is invoiced for and the event held in a certain VAT quarter but the client doesn't pay up until the next quarter do you include it in the period it was paid in or held in (if that makes any sense). I was under the impression you waited until you were paid.

Many thanks

Outside the flat rate vat scheme, VAT is neutral for taxes on your profits (as you pay the government the difference between the amount you receive and the amount you pay).

With the FRVS, it's possible to make a profit or loss on VAT depending on your actual VAT figures compared with the assumed flat rate.

I made a small "vat profit" last year - ie the amount I paid HMRC as flat rate VAT was less than the amount I had received from charging people VAT. I paid corporation tax on this as i recall. But I wasn't worse off (as the "vat profit" minus the tax was still more than not having the vat profit in the first place).

That's probably an overcomplicated answer ...