• Posted 11th August 2015

VAT Flat Rate Scheme

The VAT flat rate scheme may seem simple, but in reality this scheme can cause confusion for the businesses. Under a flat rate scheme, you need to pay a fixed rate of VAT over to HM Revenue & Customs (HMRC). Then after, you keep the difference between what you charge your customers and pay to HMRC as your profit. Also, you cannot reclaim the VAT on purchases except for capital asset purchases over £2,000. When you join such scheme, there are plenty of merits you could enjoy. For instance, as you do not have to submit any input costs to HMRC, you will have to deal with the least amount of paperwork. And, if you are a new business, you can receive a further 1% discount on the tax percentage you pay each quarter when you use this scheme during your first year. Despite many merits, the drawback of using flat rate scheme is you will not be able to reclaim the VAT when you buy lots of stock or have high VAT chargeable expenses. To join such scheme, you must be a VAT registered business and your annual VAT turnover must be less than £150,000 (excluding VAT) in your first year. When you register for VAT, you can join this scheme online or by post. If you join by post, you need to fill VAT600 FRS and send it to the address on the form. If you are not eligible to be in this scheme, you should leave it. Furthermore, if your turnover exceeds £230,000(including VAT) when joining this scheme, you must leave the scheme. To leave this scheme, you need to write to HMRC. Then, they will confirm when you can leave. However, you also need to remember that once you leave this scheme, you must wait 12 months in order to join this scheme again. To know whether this scheme works for you or not, you can talk to one of our tax advisers at 075 1807 5357.