A VAT Flat Rate Scheme is a way of paying VAT whereby a business pays a fixed rate of VAT to HMRC. The scheme allows the business to keep the difference between the VAT charged to the customer (normally 20%) and the VAT paid to HMRC. A business could join the scheme upon meeting the eligibility requirements – if one is a VAT registered business and the expected taxable turnover is £150,000 or less in the next 12 months. One can join through an online application, 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 expected to be in the next 12 months.

In order for a business to consider if the VAT Flat Rate Scheme is appropriate for the business, its advantages and disadvantages must be considered. Among the advantages are fewer rules to follow, easier record keeping, and a certainty as to the VAT payable 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 since any VAT paid on its purchases cannot be reclaimed from HMRC. Another disadvantage is when a business makes a lot of zero-rated or exempt sales.

If still in doubt whether the 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.