24-06-2020
Time to revisit VAT Flat Rate Scheme?

The VAT Flat Rate scheme is intended to simplify the way a business accounts for VAT and reduce the administration costs of complying with the VAT legislation. There can also be a decent VAT saving for those using the scheme.

The scheme is only open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. If you have clients whose turnover has reduced to this level as a result of the Coronavirus pandemic, then it may be worth reconsidering the scheme.

Under the Flat Rate scheme, businesses simply pay VAT as a fixed percentage of their VAT inclusive turnover. When using the scheme, the amount of VAT paid on business expenses becomes irrelevant. This is quite different to the normal VAT accounting procedure where simply putting the VAT paid to HMRC is the difference between the VAT charged to customers and the VAT paid on purchases.

The actual percentage used depends on the type of business. There are special rules for those classed as a limited cost business who must use a flat rate of 16.5%. This will negate the benefit of joining the scheme.

In addition to the turnover limit you cannot use the scheme if:

  • You left the scheme in the last 12 months,
  • You committed a VAT offence in the last 12 months,
  • You joined or could have joined a VAT group in the last 24 months,
  • You registered for VAT as a business division in the last 24 months
  • Your business is associated with another business,
  • You have joined a margin or capital goods scheme.

Once you join the scheme you can continue using the scheme once your total business income does not exceed £230,000 in a 12 month period. There are some special rules if the increased turnover is temporary. There is also a first year discount for businesses in their first year of VAT registration of 1%.

Source: HM Revenue & Customs | 24-06-2020

Back

Post a Comment

Your email address will not be published. Required fields are marked *

*

  • ABOUT US

    the accountancy practice kent logo

    The Accountancy Practice is a Kent based firm specialising in small and medium sized businesses. We provide a friendly, professional service and regard our smallest client as important as our largest.
  • Latest News

    09-07-2020
    Summer Statement

    The Chancellor, ... read more

    08-07-2020
    Tax Credits updates required this month

    Families and ... read more

    08-07-2020
    Reminder of businesses opening since 4 July 2020

    A reminder that ... read more

    More news

  • CONTACT US

    The Accountancy Practice
    10 Churchill Square
    Kings Hill
    West Malling
    Kent ME 19 4YU

    01732 897929

    Fax: 01732 897939
    info@theaccountancypracticeltd.co.uk


    Facebook
    Twitter
    Linkedin
  • Why choose us

    By working more closely with you than traditional accountants, The Accountancy Practice is able to gain a deeper understanding of your individual business needs. We are then on hand to support you with day to day issues and provide ongoing financial and taxation expertise. You can think of us as your virtual Financial Director.