Flat Rate Scheme
Is your business one with a turnover under £150,000? Do you find your VAT administration burden to be overwhelming? If so, you could significantly alleviate the burden of administration through a special VAT scheme called the Flat Rate Scheme (FRS).
Under the FRS, your paperwork requirements are much more lenient since you don’t claim any input VAT apart from on capital goods with a VAT inclusive price of £2000 or more. This is subject to certain requirements too, but we’ll keep it simple for the time being. So, what’s the benefit you may be thinking? You continue to charge your customers VAT at the standard rate (or another applicable rate depending on the nature of your business) but you only pay HMRC a certain percentage (under 20%) of your VAT inclusive turnover. The percentage to be applied depends on the type of business with HMRC’s page containing the breakdown of the percentage to apply. Limited cost traders, those classified as spending either under 2% of their revenue or up to £1000 a year on goods, face a pre-determined percentage of 16.5%.
The FRS would be most suitable for your business if it doesn’t incur much input VAT and has high output VAT. However, if your business sells zero-rated products or expects to be in a VAT repayment position in most instances due to the high cost of sales, the FRS isn’t suitable for you since it would put you at a disadvantage. Additionally, if your VAT inclusive turnover exceeds £230,000 in any year or is expected to exceed this limit in the next 12 months, you must leave the FRS.
To find out more about the FRS and other options available to your business in regard to VAT as well as other tax-related matters, contact Cheylesmore Accountants today to enable us to optimize your company’s operations so you can focus on what you love most. Trusting us with number-crunching and accounting should enable you to supercharge growth by focusing on different avenues for earnings growth.