The flat rate scheme for small businesses is designed to simplify the completion of VAT returns for small businesses but it can also save you money. Do not confuse this scheme with the flat rate scheme for farmers, which is completely different. What happens is that rather than calculate the output and input VAT due every quarter, you simply apply a set percentage to your gross turnover (including the VAT charged to your customers) on a quarterly basis and this is the VAT due to HMRC. To use the scheme your annual taxable supplies (excluding VAT) must be less than £150,000. Total income includes all income falling within UK VAT, which includes zero rated and exempt supplies such as letting a residential building, but not services supplied to customers outside the UK. If you want to exclude certain income from the Flat rate VAT scheme, such as let property income, you must ensure that income is received by a different legal person than that which is applying for the scheme. . You must also not already use another special VAT scheme such as the second hand goods or tour operators scheme. The fixed percentage that you apply depends on the particular trade sector that the majority of your business falls into. The percentages vary from 5% to 14.5%. The turnover to apply the percentage to includes all zero rated and exempt income. To use the scheme you need to apply to HMRC. If you buy any capital assets such as computers costing over £2000 each, you can apply to get the VAT back on these separately. The scheme is designed to save on the administration costs of completing VAT returns, although you do still need to raise VAT invoices for your sales applying VAT at the normal VAT rate. However it is also worth calculating how much VAT you would pay on this scheme compared to what you pay without the scheme to see if there is a VAT saving to be made by switching to this scheme. There is often a saving where you have a low value of purchases for your business sector, or make sales that fall into more than one trade sector. So go check it out. If you would like any further information,
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
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