Flat Rate Scheme

A VAT Flat Rate Scheme is a way of paying VAT on which a business pays a fixed rate of VAT to HMRC. The scheme allows the business to keep the VAT difference between what has been charged to the customer (normally of 20%) and the VAT amount paid to HMRC.  A business could join the scheme upon meeting the requirements for eligibility – if one is a VAT registered business and the expected VAT taxable turnover is £150,000 or less in the next 12 months. One can join through online, email or send it by post. Once qualified, a confirmation will be given that a business has joined the scheme. However, one must leave scheme if the business is no longer eligible to be in it – if the turnover in the last 12 months was more than £230,000 or expect to be in the next 12 months.

In order for one business to consider if a VAT Flat Rate Scheme is appropriate for the business, its advantages and disadvantages must be considered. Among of the advantages are easier way of record keeping, fewer rules to follow and a certainty as to the VAT amount paid to HMRC. It is an easier way of record keeping as it is not necessary to record every VAT transaction for both sales and purchases, a certain fixed rate is to be multiplied instead to the total sales to identify the total amount payable to HMRC. However, if a business purchased a substantial amount with VAT, this could be a potential disadvantage for a business. For the VAT Flat Rate scheme, any VAT amount paid through its purchase cannot be reclaim from HMRC. Another disadvantage is also when a business makes a lot of zero-rated or exempt sales.

If still in doubt whether a flat rate scheme is more appropriate on one’s business or not, you may always reach to Cheylesmore Accountants, who would be happy to serve you on your needs.