Letter received from HMRC on 8 May 2008 with their reference being S171366 and it reads.;

"Thank you for your letter dated 8 April 2008, regarding how to treat bank interest when using the flat rate scheme.

I can confirm that bank interest received by a business is treated as exempt income and as such would form part of the flat rate turnover when calculating the VAT due under the flat rate scheme."

I am sorry Steve, but I don't understand. At the moment I calculate my total sales including VAT and work out 13% of that and send it to HMR&C

Its intended to roughly match vat paid - minus vat charged

If I now add interest onto my total sales, then I will effectively be paying VAT on something I haven't charged VAT on (i.e. me lending a bank money)

This surely cannot be right.

What's worse I haven't paid it before, any advice if I have been underpaying?

many thanks
rosieanddaisy