VAT flat rate

VAT flat rate scheme set a fixed percentage to be applied when calculating your VAT payable to HM Revenue and Customs.

Your company may opt for VAT flat rate scheme if your annual sales is up to £150,000. 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.

No record for input tax

Your company charge a standard rate of VAT on sales as usual. The difference of this scheme to that of the standard VAT scheme is that your company does not need to account for input tax on expenses. Your company simply pays a percentage of VAT on sales including all reduced, zero-rated and exempt sales to HM Revenue and Customs.

VAT accounting records

It is high recommended for your company to keep your accounting records the same way as you would if you are under the Standard VAT scheme. This would enable you to monitor and compare if your company is paying more VAT under the VAT flat rate scheme to HMRC. If your company is persistently paying extra VAT, consider opting back to VAT standard rate scheme.

Your company must leave the flat rate scheme when its sales exceeded £150,000.

Calculate VAT payable under VAT flat rate scheme

You multiple your sales inclusive of VAT charged to your customers with the VAT flat rate applicable to your business.

For example, you provide IT consulting services. Your VAT flat rate is 14.5%. Lets say, your income from your consulting business is £10,000 and you charge 20% VAT on top. Your total income inclusive VAT is £12,000. The VAT payable to HMRC would be £1,740.

The VAT rates for businesses approved under the flat rate scheme vary and it is dependent on the business sector you are in.

VAT flat rate percentage by business sector
Type of businessCurrent VAT flat rate
Accountancy or bookkeeping14.5%
Advertising11%
Agricultural services11%
Any other services not listed elsewhere12%
Architect, civil and structural engineer or surveyor14.5%
Boarding or care of animals12%
Business services that are not listed elsewhere12%
Catering services including restaurants and takeaways12.5%
Computer and IT consultancy or data processing14.5%
Computer repair services10.5%
Entertainment or journalism12.5%
Estate agency or property management services12%
Farming or agricultural that is not listed elsewhere6.5%
Film, radio, television or video production13%
Financial services13.5%
Forestry or fishing10.5%
General building or construction services*9.5%
Hairdressing or other beauty treatment services13%
Hiring or renting goods9.5%
Hotel or accommodation10.5%
Investigation or security12%
Labour only building or construction services*14.5%
Laundry or dry cleaning services12%
Lawyer or legal services14.5%
Library, archive, museum or other cultural activity9.5%
Management consultancy14%
Manufacturing fabricated metal products10.5%
Manufacturing food9%
Manufacturing not listed elsewhere 9.5%
Manufacturing yarn, textiles or clothing9%
Membership organization8%
Mining or quarrying10%
Packaging9%
Photography11%
Post offices5%
Printing8.5%
Publishing11%
Pubs6.5%
Real estate activity not listed elsewhere14%
Repairing personal or household goods10%
Repairing vehicles8.5%
Retailing food, confectionery, tobacco, newspapers or children’s clothing4%
Retailing pharmaceuticals, medical goods, cosmetics or toiletries8%
Retailing that is not listed elsewhere7.5%
Retailing vehicles or fuel6.5%
Secretarial services13%
Social work11%
Sport or recreation8.5%
Transport or storage, including couriers, freight, removals and taxis10%
Travel agency10.5%
Veterinary medicine11%
Wholesaling agricultural products8%
Wholesaling food7.5%
Wholesaling that is not listed elsewhere8.5%

*Labour only building or construction services means building or construction services where the materials costs supplied is less than 10% of relevant turnover from such services. If more than this amount, your business is classed as general building or construction services.

Seek accountants advice if you have any questions about VAT flat rate scheme.

Lifetime ISA

Lifetime ISA is an individual savings account introduced by the government to help people living in the United Kingdom to save for later life and/or to buy their first home in the UK.

Lifetime ISA is a tax free savings account. Every £100 you put in the ISA account, the government would pay you £25. In other words, the government will add 25% bonus to your savings.

Age limit

You must be over 18 of age and under 40. You must be living in the United Kingdom to be eligible to open a Lifetime ISA account unless you are a Crown Servant (i.e. a diplomat or civil servant) or their spouse or civil partner.

Saving per year

The maximum you could put in your ISA account is £4000 per year and can continue until you reach the age of 50. After you reach 50, you would not be able to put in any more money in it. you account will stay open and your savings will still earn interest or investment returns.

25% Withdrawal charge

If you withdraw your money from your ISA account before you reach the age of 60, the government would take back the 25%, they called it a withdrawal charge.

The withdrawal charge would not be levied if you are:

  • Using the money to buy your first home.
  • Aged 60
  • Terminally ill with less than 12 months to live
  • Transferring to another Lifetime ISA with a different provider.
Use Lifetime ISA to buy first home

You can use your Lifetime ISA to buy your first home, if you have opened the ISA account for more than 12 months. You are buying your home with a mortgage. You property price is below £450,000. You must instruct your a solicitor or a conveyancer to apply for the fund in your ISA account and the fund will pay directly to them.

You can transfer money from Help to buy ISA to your Lifetime ISA. Take note that the 25% withdrawal charge applied to you if you transfer money from Lifetime ISA to Help to Buy ISA.

Further reading about Lifetime ISA account, click here.

Help to buy ISA

Help to buy ISA is introduced on 1 December 2015 to help people living in the United Kingdom to buy their first home. The government would pay £50 bonus for every £200 you saved and put in your ISA account.

Your initial deposit into your Help to Buy ISA can be up to £1200 and thereafter £200 a month. The bonus is capped at £3000 on £12,000 savings. The bonus is tax free.

You must be 16 years of age, have a valid National Insurance number and a resident in the United Kingdom.

Your first home must be in the United Kingdom. This will be the only property you own and you intend to live there. You are buying your first home with a mortgage.

If your property is in London, the purchase price must not exceed £450,000. Anywhere else in the United Kingdom, your purchase price must not over £250,000.

You may use the ISA calculator to work out how much government bonus you will receive based on the saving you put in your Help to buy ISA account.

Business with new accountants

Business with your accountants is important.

New accountants would write to your existing or former accountants to enquire before they accept your appointment as new client.

You would be ask to provide contact details of your previous accountants for this purpose.

Accountants’ fees

Ask your new Accountants to provide you with a quote of the accountancy services you required for your business. Be clear with the scope of work for the quoted fee.

Some accountants offer fixed fee accounts packages for limited company and other may quote you rate per hour for your assignment.

If your accountants quoted you rate per hour, ask them the estimated time they would take complete your assignment so that you know roughly how much it would cost you.

Questions for Accountants

Some people like to send long list of questions to their accountants asking possibility of doing this and that business and what is the tax implication of each business model.

Your accountants would usually charge for this kind of assignment.

It is good to seek accountants advice on your business model. Be specific about your questions on your business model if possible. This would help your accountants to gather information quickly for your business model and you save money too.

Dedicated accountant service

Dedicated accountant service comes with a reasonable quality price tag, if you would like to have direct access to a specialist tax accountant for example.

Ask your new accountants for the fees quoted to you, whether there will be a dedicated accountant as your main contact point if you have any questions about your company affairs.

If various accountants within the firm would be involved in your assignments, ask what is the best way for you to communicate if you have questions about your company transactions.

Communication is the key.

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