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Flat Rate Scheme for small businesses

Flat Rate Scheme for small businesses Flat Rate Scheme for small businesses

2.1 What is the Flat Rate Scheme?

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat rate percentage to your gross turnover to arrive at the VAT due.

Fixed rate percentages vary depending on the type of business.

2.2 How will it help me?

The main benefits of the scheme are:

  • simplified record keeping, as you do not have to keep detailed records of sales and invoices
  • fixed rate percentages that are lower than the standard rate
  • it helps manage cash flow

2.3 Will all businesses benefit?

Not every business will benefit from the scheme:

  • if your customers are VAT registered you will have to calculate the VAT and issue VAT invoices in the normal way
  • for businesses who buy and sell goods from outside the UK, the scheme may become more complex, (see paragraph 6.4)
  • if you usually claim input tax, (see paragraph 2.4)

Also, as the flat rates are averages, you may pay more VAT on the Flat Rate Scheme than you would on normal accounting.

2.4 What about input tax?

If you use the Flat Rate Scheme, you do not recover input tax or VAT on imports or acquisitions. This is because the flat rates are calculated to represent the net VAT you need to pay to HMRC. In other words, an allowance for input tax is built into the flat rates.

There are special rules when you buy high value capital goods, section 15 explains how you can claim back the VAT on these purchases.

2.5 Who can join the scheme?

The scheme is for businesses with a turnover of no more than £150,000 a year, excluding VAT. There are some additional rules to stop abuse of the scheme. If you want to know more section 3 explains the joining conditions in more detail.

The Flat Rate Scheme is a simpler method of working out the VAT you have to pay to HMRC and so is unsuitable where you regularly receive repayments from HMRC.

2.6 How do I join?

You can apply by post, phone or email, section 5 gives full details.

2.7 Can I combine the Flat Rate Scheme with other schemes?

This table shows which other schemes you can use with the Flat Rate Scheme.

Scheme May be used with Flat Rate Scheme? Further information
Annual accounting Yes Combining the Annual Accounting Scheme with the Flat Rate Scheme can mean you spend less time working out how much VAT you owe, avoid a big bill by evening out your VAT over the year and submit only one VAT Return a year.

If you wish to join both schemes, Annual accounting (VAT Notice 732) contains a joint application form.

If you are already using one of the schemes and wish to use the other, complete the form for the scheme you have not yet joined.
Cash accounting No The Flat Rate Scheme has its own cash based method that is very similar to the Cash Accounting Scheme – see section 9.
Retail schemes No The Flat Rate Scheme has its own retail based method that is very similar to ordinary retail schemes.

If you want to leave a retail scheme to join the Flat Rate Scheme, simply follow the rules about ceasing to use the retail scheme in Retail schemes (VAT Notice 727).
Margin Scheme for second-hand goods No If you sell a significant proportion of second-hand goods using margin schemes or the Auctioneers’ Scheme, the Flat Rate Scheme will be of limited value to your business. This is because the Flat Rate Scheme calculates VAT on the total received for your sale rather than on the margin.

source: https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses


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Read 618 times Last modified on Thursday, 24 October 2019 06:58
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