Author: JP / / Latest News
The VAT Flat Rate Scheme is intended to simplify VAT accounting and reporting for small businesses, and some may even find that they pay less VAT than using normal VAT accounting.
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC to use the scheme. You can remain in the scheme until your turnover including VAT exceeds £230,000. With the Flat Rate Scheme you pay a fixed rate of VAT to HMRC depending on your business category and is calculated as a percentage of your gross sales. Please beware you will pay over VAT on your zero rated, exempt and currently EC Sales income to it may not be beneficial for some companies. However you can’t reclaim the VAT on your purchases, except for certain capital assets over £2,000.
HMRC have recently revised their guidance on different business categories. For example not all consultants should use the 14% flat rate applicable to management consultants and should instead use the 12% rate for ‘business services not listed elsewhere’. That would result in them paying over 2% less of their VAT to HMRC. On £150,000 a year that would be a £3,000 VAT saving. There is a further 1% reduction in the first year that the business is VAT registered.