V.G. Woodhouse & Co. Chartered Certified Accountants
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
Limited cost trader - Virtual exclusion from the cash benefits of the VAT flat rate scheme
- 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.
- 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.
VAT flat rate scheme - drawbacks
- 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:
- Not supplies outside of the scope of UK VAT.
- Not Services supplied outside the scope of VAT.
Outside the scope of UK 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.
Leaving the VAT flat rate scheme
- 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
77 Victoria Street
This is a postal process; there is no online method.
Contact us if you wish to register or deregister for the VAT flat rate scheme or for general VAT and tax advice
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