The Flat Rate VAT scheme simplifies your VAT admin, saving you time and hassle and decreasing the chance for errors. It might also save you money.
How it works
- Rather than calculating the VAT on every transaction you make, you just pay a flat rate percentage of your turnover.
- The percentage is less than the standard VAT rate because the scheme accounts for the fact you're not reclaiming VAT on purchases you make.
- The percentage you use varies depending on which industry you're in. You can see a full lilst here: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm
- If you make a lot of purchases from VAT-registered businesses or buy a lot of zero-rated items, you might end up worse off if you join the scheme.
- You can join if your VAT taxable turnover (excluding VAT) will be £150,000 or less for the year ahead. VAT taxable turnover is the total of everything you sell throughout the year that's liable for VAT (excluding the actual VAT you charge.)
- You can stay in the scheme until your total business income is more than £225,000 (though this threshold will increase from January 4 2011 in line with the standard rate of VAT increasing to 20%).
- You get a 1% discount on your flat rate percentage for the first year after you registered for VAT.
Record keeping and VAT returns
- You complete a Flat Rate Scheme return rather than a normal VAT return.
- In your VAT account, you must record the flat rate turnover and percentage you used to calculate your VAT payment using the scheme, as well as recording what VAT you owe.
- You must still show the VAT on invoices and receipts you issue as if you were doing so under normal VAT regulations (showing which rate of VAT you used - standard, reduced or zero - and how much that is).