Flat rate scheme for VAT
12th July 2014
It’s not very often I get to say to clients that they can make money out of HMRC but for some of my clients the Flat Rate VAT scheme can do this.
If all your customers are VAT registered businesses and you are in the right industry registering for this scheme can increase your businesses profits.
This scheme is aimed at encouraging small businesses to register for VAT by making the accounting for VAT easier. Rather than keeping records of all the VAT on your income and expenses instead you just apply an industry specific percentage to your gross income.
This means you can collect VAT at 20% from your customers but pay a lower amount over to HMRC. This difference is meant to cover the VAT on expenses that you can’t claim back under this scheme but for most small businesses with little overheads this would be minimal.
Even if you are already VAT registered you can still apply to register for Flat rate VAT. Benefits of the scheme are:
- This scheme saves you time so you can spend more time on your business instead of recording the VAT on every single transaction.
- There are fewer rules to follow so for example you no longer need to worry about what purchases you can and can’t claim VAT back on. This gives you peace of mind as there is less chance of mistakes being made.
- For some businesses this scheme can mean they are paying less VAT to the Revenue.
- In the first year of VAT registration you get a 1% reduction in the percentage.
- It makes budgeting easier as you know your VAT liability will always be a set percentage of your income.
Any businesses with an annual turnover of less than £150,000 can join this scheme.
Please contact us if you would like us to calculate if your business could save money using this scheme or if you have any questions.