When VAT was introduced in the UK, one of its virtues was supposed to be its simplicity. It’s no surprise then that VAT turned into one of the most complicated taxes that business owners have to deal with.
So HMRC did something uncharacteristic. They introduced a VAT scheme designed to make things simpler for smaller businesses.
The Flat Rate VAT Scheme
The Flat Rate Scheme was meant to make record keeping easier for smaller businesses.
You charge VAT on your sales in the normal way, but there’s no need to keep track of VAT on your purchases. Instead you just need to know your VAT inclusive sales figure (and any VAT on assets you bought that cost more than £2,000).
You take your VAT inclusive sales figure for the quarter and multiply it by the flat rate percentage HMRC provides for your trade sector, and that’s the VAT you have to pay.
An unexpected upside
For some businesses the simplicity of the scheme isn’t the main benefit.
Quite often the amount of VAT the company would pay to HMRC under the Flat Rate scheme is a lot lower than what they would pay under standard VAT cash accounting.
So what happens to the difference? It’s extra profit for your business.
At Accountancy Edge, we check all of our eligible VAT registered clients each year to see if the scheme would work for them. In the last few months we’ve identified several businesses that have been more than £4,000 a year better off just by changing VAT scheme.
And that’s not just a one off. Your business can benefit every year.
So, who is eligible?
Your business can join the Flat Rate Scheme if in the next year your VAT exclusive turnover is likely to be less than £150,000.
Would it be right for your business?
If you’re interested in finding out, then why not get in contact with us?
We can look at our last four VAT returns and tell you whether the Flat Rate Scheme would work for your business. If it would work for you, we’ll also tell you how much extra profit you could make just by changing VAT scheme.