As a small business, VAT could be something that frequently causes you hassle, giving you additional administrative tasks. VAT (Value Added Tax) is consumption tax – this is an amount of money added onto the cost of most goods and services. Businesses pay a certain amount of VAT to HM Revenue & Customs, the amount of which is the difference between the VAT your business charges your customer, and the VAT that your business pays on your own purchases. Some of the time, businesses can lose out on money due to this process. This is where the VAT Flat Rate Scheme can come in handy.

What is the VAT Flat Rate Scheme?

The Flat Rate Scheme for VAT is where businesses pay a fixed rate to HMRC. This allows you to keep the difference between what you charge, and what you pay to HMRC, potentially preventing you from losing out on profit. You will be able to charge the same amount to your customers, whilst paying a lower rate to HMRC. This scheme is perhaps the most helpful for small businesses, and one of the benefits is that it stops you from having to track the VAT on purchases made by your customers.

What are the requirements?

There are a certain set of requirements that your business must meet in order to be eligible for the VAT Flat Rate Scheme. Firstly, your VAT taxable turnover must be £150,000 or less to meet the requirements of the scheme. You also won’t be able to reclaim the VAT spent on purchases, except for certain capital assets over the amount of £2000. You won’t be eligible in the following circumstances:

  • Your business registered for VAT as a business division in last 24 months
  • Your business is closely associated with another’s
  • You joined a margin or capital goods VAT scheme
  • You previously left the scheme in last 12 months
  • You committed a VAT offence in last 12 months (for example, evasion)
  • Your business joined a VAT group in last 24 months

How much will I pay to HMRC?

Although the amount you will pay to HMRC is a fixed rate, it depends on the industry that your business is within. You can calculate the flat rate that you could be paying on the government website, and you could also benefit from the updates rates for different industries.

How do I join the scheme?

If you’re interested in joining the scheme, you can visit the government website and follow the instructions. There are also further details on the eligibility for the scheme, allowing you to find out more specifics.

If you are interested in the VAT Flat Rate Scheme, it could be worth a discussion with our accounting team at Bells Accountants. We can help you navigate the process, and go through the benefits to potentially enrolling in the VAT Flat Rate Scheme. Our expert accountants have the knowledge to guide you through your small business’s finances, helping you make the right decisions. If you’re interested in our advice, why not get in touch with us and find out more about what we can support you with.