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What the Flat Rate Scheme is:-
a simplified VAT scheme for smaller
businesses.
Under the flat rate scheme, VAT-registered
traders pay a fixed percentage of their
VAT inclusive turnover to HMRC instead of
the difference between the VAT that they
charge and the VAT than they incur.
The flat rate percentage depends on the
business sector within which the trader
operates.
With the exception of certain capital
assets costing more than £2,000, the
trader cannot reclaim the VAT on
purchases; the flat rate percentage
includes an allowance for input VAT.
Joining The Scheme
Traders can apply to join the flat rate
scheme if their turnover, excluding
VAT, is £150,000 or less.
Traders can also choose to leave the
scheme if they decide it is no longer for
them.
Once a trader has left the scheme, they
cannot rejoin it for at least 12 months.
Is the scheme still worthwhile?
The flat rate percentage for limited cost
businesses is 16.5% of VAT-inclusive
turnover.
This equates to 19.8% of VAT-exclusive
turnover, which means that virtually all the
VAT charged to customers is paid over to
HMRC, with very little allowance to cover
input VAT.
Leaving the Scheme
Once in the flat rate scheme, a trader must leave it if:
· on the anniversary of
joining turnover in the last
12 months (including VAT)
was more than £230,000;
· turnover in the next 30
days is expected to be
more than £230,000
(including VAT);
·they become a tour operator
and have to account for VAT
using the Tour Operator’s
Margin Scheme;
· the trader intends to buy
capital goods covered by the
Capital Goods Scheme;
· the trader becomes eligible to
join an existing VAT group; or
· the trader becomes
associated with another
business.
A business is a limited cost business if the
cost of its relevant goods is less than 2%
of its turnover. However, the list of
relevant goods excludes all service and
fuel.
Consequently, a business that has
significant expenditure on non-
relevant goods, may not recover the
associated input VAT in full.
In this situation, the trader may be better
off using traditional VAT accounting and
opt to leave the flat rate scheme
voluntarily.
How do I leave the Scheme?
You can write to HMRC to apply to leave
the scheme
Get in touch with us at
infos@am-accounting.co.uk or
call 0121 270 4072 to discuss
more