VAT & Flat Rate Scheme
VAT is a tax chargeable on taxable supplies made in the UK by taxable persons. Credit is given for tax paid to other businesses and the net balance is payable or reclaimable - normally on a quarterly basis.
Taxable persons
A taxable person is any person carrying on a business which is, or is required to be registered for VAT and includes the following:
Should you be registered for VAT?
Can you register for VAT if my taxable turnover does not exceed the prescribed limits?
It is possible to register voluntarily provided you have a bona fide business.
Cash accounting scheme
There is a special scheme applicable to businesses where taxable turnover is expected to be not more than £1,350,000 in the next 12 months.
This allows the trader to account for VAT on the basis of payments received and made rather than on tax invoices issued and received.
It may be advantageous to use cash accounting from the date of registration, although some businesses will not benefit from this scheme, particularly if they have significant business credit and supply on a cash only basis.
How often will I have to complete a VAT return?
VAT returns must be filed online and must normally be submitted every quarter, along with any payment due to HMRC no later than 7 days after the end of the month following the period end. You will have to make returns and payments on time because there are penalties for late filing and/ or late payment. As a part of our service we would advise you what records you need to keep to complete the VAT return.
Flat rate scheme
This scheme is designed to reduce the cost of complying with VAT obligations by simplifying the way small businesses calculate their VAT. It is available to businesses who expect their VAT exclusive turnover in the next 12 months to be no more than £150,000 in taxable supplies.
A business must leave the scheme when turnover increases to £230,000.
The flat rate scheme saves time by removing the need to calculate and record output tax and input tax in calculating the net VAT due to HMRC. The VAT in a period is calculated by applying the flat rate percentage to the tax inclusive turnover for the period. No input tax is then available for reclaim, unless the business buys capital items exceeding £2,000.
Some examples of the HMRC prescribed flat rates are:
Taxable persons
A taxable person is any person carrying on a business which is, or is required to be registered for VAT and includes the following:
- An individual
- A partnership
- An unincorporated association, e.g. trust or charity
- A limited company
- A limited liability partnership
Should you be registered for VAT?
- You should notify HMRC when:
- Taxable turnover for the past twelve months exceeds £82,000
- There are reasonable grounds for believing that your turnover for the next 30 days will exceed £82,000
In the first case, notification must be within thirty days of the end of the relevant month. In the latter case, notification must be within thirty days of the date on which grounds first existed.
It is important to monitor turnover because there is a penalty for late registration. This is in addition to the tax payable for the period when VAT should have been charged.
Can you register for VAT if my taxable turnover does not exceed the prescribed limits?
It is possible to register voluntarily provided you have a bona fide business.
Cash accounting scheme
There is a special scheme applicable to businesses where taxable turnover is expected to be not more than £1,350,000 in the next 12 months.
This allows the trader to account for VAT on the basis of payments received and made rather than on tax invoices issued and received.
It may be advantageous to use cash accounting from the date of registration, although some businesses will not benefit from this scheme, particularly if they have significant business credit and supply on a cash only basis.
How often will I have to complete a VAT return?
VAT returns must be filed online and must normally be submitted every quarter, along with any payment due to HMRC no later than 7 days after the end of the month following the period end. You will have to make returns and payments on time because there are penalties for late filing and/ or late payment. As a part of our service we would advise you what records you need to keep to complete the VAT return.
Flat rate scheme
This scheme is designed to reduce the cost of complying with VAT obligations by simplifying the way small businesses calculate their VAT. It is available to businesses who expect their VAT exclusive turnover in the next 12 months to be no more than £150,000 in taxable supplies.
A business must leave the scheme when turnover increases to £230,000.
The flat rate scheme saves time by removing the need to calculate and record output tax and input tax in calculating the net VAT due to HMRC. The VAT in a period is calculated by applying the flat rate percentage to the tax inclusive turnover for the period. No input tax is then available for reclaim, unless the business buys capital items exceeding £2,000.
Some examples of the HMRC prescribed flat rates are:
| Category of business carried on | Appropriate percentage |
|---|---|
| Retail of food, newspapers, confectionery | 4 |
| Retail of vehicles or fuel | 6.5 |
| Photography | 11 |
| Estate agency | 12 |
| Hairdressing | 13 |
| Legal services | 14.5 |
| Computer and IT consultancy | 14.5 |
If you are making supplies to other VAT registered businesses, you give them a VAT invoice charging VAT at the normal rate for the supply (not the flat rate percentage).
Do contact us if you would like further help or advice on this subject.
Do contact us if you would like further help or advice on this subject.
