There’s a nice tip on VAT from one of the Telegraph Business Club's members today in the Telegraph, explaining how flat rate VAT can save a good chunk of money and time.
“Flat rate VAT is worth a look if you are a service business,” writes Paul Evans of First Class Gym.
“Over three years I worked out that we were paying out over 11.2pc of our turnover in VAT, on the flat rate it was reduced to 7pc; our quarterly return took 20 minutes to work out because VAT is not separated out on the accounts, you only enter the gross figures.
“I am currently saving over £800 per month.”
The Flat Rate Scheme (FRS) is specifically designed to make life easier for small business owners. As Evans explains, it lets you simply calculate VAT as a flat rate percentage of your gross turnover, rather than fiddling about calculating it for each and every single transaction.
This makes for easier and quicker bookkeeping with far fewer rules to follow and scope for mistakes.
The flat rate varies depending on what industry you’re in. You can find out the different rates on the HMRC website here.
The flipside is you can’t reclaim VAT on any purchases you make, as the flat rate has been designed to try to pre-account for these. So if you buy a lot of services and goods from other VAT-registered businesses, you may end up paying more VAT with the flat rate scheme. Ditto if you make a lot of zero-rated or VAT-exempt sales.
But if neither of those conditions looks likely to affect your business, take a look at the flat rate – you could end up saving bagfuls on your VAT.