Flat Rate Scheme: What do you need to know?
When running a business, ensuring you get VAT right is vital. So, how can you make things easier?
Designed to streamline record-keeping, the VAT Flat Rate Scheme allows you to pay or claim back a simplified fixed rate of VAT to HMRC.
This typically allows you to keep the difference between the VAT you charge to customers and the VAT you pay on your own purchases.
What are the benefits of the scheme?
Maintaining detailed records of sales and purchases can be tedious and time-consuming for any business, and the scheme aims to simplify this.
Additionally, it offers fixed rate percentages that are lower than the standard rate, supporting cash flow management.
Are you eligible?
If you wish to use the scheme, you must meet the criteria. This includes:
- Being registered for VAT
- Expecting an annual turnover (excluding VAT) of £150,000 or less
- Having no ‘association’ with another business.
However, there are some instances where your company will not benefit from the scheme.
For example, if your customers are VAT registered, you must determine the VAT and issue VAT invoices in the usual way.
Other reasons the scheme will not be right for you include:
- Your business buys and sells goods from outside the UK, which may make the scheme more complicated
- You normally claim input tax.
What happens next?
If your application is successful, HMRC will confirm this in writing.
The letter will state when you can begin to use the scheme, which will typically be from the start of the VAT period once your application is received.
You may request an earlier or later start date. When doing so, HMRC will take multiple factors into account, including when you apply and your compliance record.
It is advisable to speak to an accountant before joining the scheme to be sure it is right for your business. Please contact our team today.
