It’s important to know what you’re getting into with the VAT flat rate scheme. Here are our top three choices on what you must know before you begin dealing with this scheme.
- Firstly, this scheme is in fact designed in order to assist small businesses and small business owners if they have a turnover of absolutely no more than £150,000 per every year, excluding their VAT. The scheme actually helps by taking some of the hard and time-consuming work out of the process of recording all of your VAT sales and purchases. If you decide that you will be using this scheme, keep in mind that you are required to pay HMRC a small single percentage of your turnover during a VAT period.
- Secondly, it’s important to know that the percentages that apply to this VAT flat rate scheme do currently vary and they start from 4 percent for retailers of food products, as well as retailers of children’s clothing, and go all the way up to 14.5 percent for suppliers of labour services only, such as and including builders and contractors.
- During you very first year of VAT registration, you do in fact receive a 1 percent reduction in the flat rate. This actually means that you as a small business or small business owner are allowed to remove 1 percent off of the flat rate that you apply to your turnover. This is true up until the final day before your first anniversary of becoming VAT registered.
So, those are our top three things to know about the VAT flat rate scheme, but what else do you need to keep in mind? Well, the VAT flat rate scheme works really well for some people, but doesn’t work that well for others. If we’re trying to think on the positive side, though, the VAT flat rate scheme will always definitely save you some time doing the administrative work yourself, or some money for paying someone else to do the administrative work for you. This is because, with the VAT flat rate scheme, you don’t have to work out every single item of input and output tax. However, if your customers are VAT registered, you still do have to calculate the VAT and issue VAT invoices in the normal way that you typically would. From a financial standpoint, the flat rate averages may in fact work out to be cheaper for you and your business in the long run than normal accounting services. Occasionally, though, a small business or small business owner may find that the VAT flat rate scheme makes things more expensive on them. If you are in doubt, please contact us, so we can prepare an assessment for you.
When you use the VAT flat rate scheme, you get to pay the VAT quarterly, but don’t worry. If you find that your inputs rise and you want to switch back to the normal VAT scheme, you can do that at any time you like. You’re also able to claim VAT on any capital expenditure of more than £2,000 excluding VAT.
Ecommerce may find it especially beneficial to apply flat rate scheme, so if you are selling on Amazon or ebay, please contact us to discuss it.
You can easily register to join the VAT flat rate scheme online. See the GOV.UK website for further details.
