VAT Flat Rate Scheme… Are You Eligible?

The standard rate of Value Added Tax (VAT) in the UK currently stands at 20 percent. The amount of VAT which an organisation pays (or reclaims) from HM Revenue and Customs (HMRC) is, in most cases, the difference in value between the VAT charged by the business on their taxable supplies and the VAT the organisation pays on their purchases.

What is the Flat Rate Scheme?

The Flat Rate Scheme is a scheme aimed at small businesses designed to reduce their record-keeping burden. Instead of keeping records of all the VAT paid on the purchases of the business (potentially lots of little invoices), the business can instead opt to pay over a fixed amount of its VAT inclusive supplies instead.

So what are the benefits of a flat rate scheme?

Benefits of the Flat Rate Scheme include:-

It’s simple to operate;

  • It reduces the need for detailed knowledge as to what VAT is recoverable and what is not; and
  • perhaps most importantly….the Flat Rates are usually set at rates that mean a small profit is made each quarter by adopting the Flat Rate Scheme*

VAT Flat Rates…

Rates vary accordingly to the nature of the business. Some examples include:

Type of business Current VAT flat rate (%)
Management consultancy 14
Computer and IT consultancy 14.5
Film, radio television or video production 13
Hotel or accommodation 10.5

Watch out for….

Watch out for overseas sales as these can count towards the turnover to which the Flat Rate is applied, but without any VAT being charged to your customer……so you’re actually then worse off!

There’s a 1% discount to the Flat Rate for the first twelve months of operation and so you should look to ensure that is taken advantage of, and that your rate correctly reverts at the correct time.

 Are you eligible?

In order to be a part of the VAT Flat Rate Scheme you would have to be a VAT registered business and have the expectation that your VAT taxable turnover should be £150,000 or less (excluding VAT) during the course of the next 12 months.

Thinking of Joining the Scheme?

We can help you with:-

  • confirming your eligibility;
  • confirming the Flat Rate;
  • confirming it is in your interest to join the scheme; and
  • completing the scheme joining forms.

On a sample of ten clients to whom the Flat Rate Scheme was potentially applicable, all were better off under the Scheme when considering their historic VAT profile.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.