VAT flat rate scheme

VAT flat rate scheme - structure and benefits

It may be beneficial to register for the VAT flat rate scheme.
If you are expecting turnover, excluding VAT, in the next year to be under £150,000.
This means that you keep the difference between 20% VAT charged and your flat rate.
Your flat rate can be 4% for food retailing to 14.5% for computer contractors depending on your trade or profession.
You invoice adding the normal 20% VAT.
You apply your flat rate to your sales including VAT, when completing your VAT return, and keep the difference.
Guidance - Check your flat rate here
There is an extra 1%, your flat rate is 1% less, in the first year.
The retained figure is added to your sales and is subject to either Corporation Tax or Income Tax, as applicable.
You claim no other VAT except when you buy business equipment, including commercial vehicles, costing more than £2,000 when you can claim back this VAT specifically.
Preparation of VAT forms is more simple.
You need to monitor whether it continues to be beneficial to stay in the scheme.
You need to come out of the scheme if your sales, excluding VAT, exceed £230,000 in a year including VAT, this is £191,667 excluding VAT.
Check all VAT theashold entry and exit levels in our Tax Tables Section 8 - VAT

From 1 April 2017
You are a Limited cost trader if:
You spend less than 2% of your VAT inclusive sales figure on goods (not services); or:
Less than £1,000 per annum on goods.
In an accounting year.
Goods calculation must exclude:
Capital equipment costs.
Motor running costs unless you are in a motor transport business.
As a Limited cost trader:
Your VAT flat rate is 16.5% on sales including VAT.
So if you invoice £1,000 + £200 VAT = £1,200.
You pay VAT £1,200 x 16.5% = £198.
And retain only £2 in VAT.
Which is 0.2% of your sales figure.
For example £200 VAT retained on sales of £100,000.
You still get the 1% first year reduction so you benefit by 1.4% of your sales figure in the first year after original VAT registration.
In the above example £14 on £1,000 sales, in the first year, instead of £2.
Your VAT return is still more simple in the VAT flat rate scheme.
But you may be better-off leaving the VAT flat rate scheme.
And claiming VAT on applicable business goods and services.

The flat rate VAT is payable on all sales even when you cannot charge VAT including:
Zero rated exports outside EC.
Sales in EC to VAT registered customers when you cannot charge VAT.
Check European countries inside and outside EC.
Income where VAT does not apply such as:
residential lettings.
lottery commissions.
But not payable on:
VAT reverse charge on specified goods and services
Excluded from the Flat Rate Scheme.
VAT reverse charge supplies received and made should be accounted for under the reverse charge provisions.
Not investment income such as:
Interest.
Dividends.
Not supplies outside of the scope of UK VAT.
Not Services supplied outside the scope of VAT.

"Outside the scope" is not the same as zero-rated.
The category Outside the scope of VAT is much more important where the VAT flat rate scheme applies or is being considered.

How to leave the VAT flat rate scheme - You can leave the VAT flat rate scheme at any time by:
Writing to HM Revenue & Customs.
Receiving back HMRC confirmation:
That you have left the scheme.
The date.
You must wait 12 months before you can rejoin the scheme.
You will still be registered for VAT.
VAT deregistration is subject to different criteria and application.
You must leave the VAT flat rate scheme if:
At any anniversary of joining the VAT flat rate scheme:
Your sales in the past year have exceed £230,000 including VAT.
Which is £191,667 excluding VAT at 20%.
Your sales in the next 30 days alone are expected to exceed £230,000 including VAT.
Other changes in VAT arrangements, talk to us or see guidance.
There is no form for leaving the VAT flat rate scheme.
You send a letter to:
HM Revenue and Customs
Imperial House
77 Victoria Street
Grimsby
Lincolnshire
DN31 1DB

This is a postal process; there is no online method.

Accountancy

Tax Returns and advice

Company Formation

Send us your bank data with Open Banking

Bookkeeping and VAT

Payroll and CIS Services

Online Accounting