The flat rate scheme was set up to relieve the admin burden associated with VAT for small businesses and is available when your annual turnover is less than £150,000.
Here’s how it works in practice:
• You need to register to join the Flat Rate Scheme.
• Once you join the scheme you can remain in it unless your annual turnover is greater than £230,000.
• You charge VAT on your sales invoices as normal.
• The amount of VAT that you are liable for is calculated based on a set percentage of your VAT inclusive turnover.
• The flat rate percentage you need to pay depends on the business sector you are in
• The applicable flat rate percentages can be found here
• If you are in your first year of VAT registration you get a 1% reduction on the flat rate percentage.
• You no longer claim back VAT on your purchases, although you may be able to claim back the VAT on fixed assets costing more than £2,000.
• You submit VAT returns online and make payments in the normal way.
So what are the benefits?
• There are cost savings to be made for many businesses who have very little VAT to recover on purchases.
• The VAT calculations and record keeping required to produce your VAT return are simplified.
If you are interested in finding out whether or not your business would benefit from the Flat Rate Scheme, get in touch and we can do a quick calculation based on your previous VAT returns to confirm whether or not there are savings to be made.