Flat Rate Scheme for VAT2013-02-11
Having looked into the pros and cons for specific clients over the last week or so with regards to the Flat Rate Scheme I thought I would update out news feed with regard to this.
Who can join the Flat Rate Scheme
You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:
Your estimated VAT taxable turnover - excluding VAT - in the next year will be £150,000 or less. Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies. It excludes the actual VAT that you charge, VAT exempt sales and sales of any capital assets.
Generally you dont reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000.
Once you have joined the scheme you can stay in it until your total business income is more than £230,000.
Who can't join the Flat Rate Scheme
You can't join the Flat Rate Scheme if:
You were in the scheme and left during the previous 12 months
You are, or have been with in the previous 24 months eligible to join an existing VAT group or registered for VAT as a division of a larger business.
You use one of the margin schemes for second hand goods, art, antiques or collectibles, the Tour Operators' Margin scheme, or the Capital Goods Scheme.
You have been convicted of a VAT offence or charged a penatly for VAT evasion on the last year.
Your business is closely associated with another business.
If you feel you can apply to join the scheme the next step would be to look at which flat rate percentage would apply to your business sector. For example an accountant like ourselves would fall under the 14.5%, general building or construction 9.5%, hairdressing 13% and a final example of pubs at 6.5%.
The main benefit of the scheme is the simplfied way of having to record your books and fewer rules to follow, meaning you can spend more time on the important things like running your business.
The scheme does not benefit everyone, if you have significant overheads at standard rate VAT or for instance you make zero rated or exempt sales the scheme is probably not for you.
Each business needs to be looked at individually and some careful calculations made but as we have proved over the last week it can be very beneficial as the scheme will enable a client of ours to make additional profits without doing anything.
Please get in touch if you need any advice or additional clarification on anything.
With best wishes