Small businesses with annual sales up to £150,000 may opt for VAT flat rate scheme. Under this scheme, the business is not required to keep records on input tax on every purchase transaction. This may save considerable amount of time on VAT administration. However, businesses still need to keep records of their gross purchases and expenses for corporation tax purposes or income tax purposes.
VAT Flat Rate Scheme
Under the flat rate scheme the business charges a standard rate of VAT on every sale they make, currently the standard rate of VAT is set at 20%. The difference of this scheme to the standard VAT scheme is that the business does not need to account for input tax on expenses. The business simply pays a percentage of VAT on sales including all reduced, zero-rated and exempt sales to VAT office.
The business continues to issue standard rated VAT sales invoice so that their customers are able to reclaim the VAT on their purchases the normal way.
It is advisable for businesses under this scheme to keep their accounting records the same way as to the accounting records that would have been applied under the standard accounting scheme. The benefit of this would that of it enable the business to monitor whether the business is paying more VAT under the flat-rate scheme to HMRC compared to Standard VAT Accounting Scheme. If the business is persistently paying extra, consider opting back to VAT standard rate scheme.
Applicable VAT Flat Rates
The flat rate to be used by each business is set by HMRC and it depends on the type of business you are in. The rates vary from 2% to 11.5% depending on the business sector you are in.
The business must leave the flat rate scheme when its sales exceeded £150,000.
Further reference can be made to VAT notice 733 flat rate scheme for small businesses which is available on the HMRC website, www.hmrc.gov.uk.
Concise Accountancy offers online bookkeeping services to businesses. This online bookkeeping system is simple and easy to use plus you can access your VAT records at 24 hours a day at your convenient. You are welcome to contact us to discuss your VAT requirements our accountants will provide you with the best priced bookkeeping solutions.
Concise Accountancy – London Chartered Accountants – Making VAT administration simple for business.