VAT Schemes

What VAT schemes are available?…..Which should I use?

You’ve decided you need to register for VAT, the next step is to decide which VAT scheme you will use. 

The Standard scheme

The Standard scheme is the normal method of calculating how much VAT you owe to HMRC. With this method you deduct the VAT you pay on expenses (at invoice date) from the VAT you charge on your sales invoices. The difference between the two is the amount you pay to HMRC.

However, there are some alternatives which can help to reduce the administrative burden of being VAT registered;

The Flat-Rate Scheme

This scheme is intended to assist small businesses by reducing the need to keep detailed records of purchases and sales. Scheme users issue VAT invoices as normal (charging 20% VAT); however, the VAT payable to HMRC is calculated using a lower flat-rate percentage which is applied to turnover dependent on your industry. VAT on you expenses is not claimed.

You can find your industries rate here – VAT Flat Rate Scheme : Work out your flat rate – GOV.UK (www.gov.uk)

You get a 1% discount if you’re in your first year as a VAT-registered business.

However, you’re classed as a ‘limited cost business’ if your goods cost less than either;

• 2% of your turnover
• £1,000 a year (if your costs are more than 2%)

This means you pay a higher rate of 16.5%. 

To join the scheme your VAT taxable turnover must be £150,000 or less.

Cash Accounting

The scheme allows businesses to account for VAT when payments are made and amounts are received rather than when invoices are issued and received.

Cash accounting can be used along with the standard and annual accounting scheme. The flat rate scheme has it’s own cash-based turnover method. 

To join the scheme your VAT taxable turnover must be £1.35 million or less.

The Annual Accounting Scheme

Businesses opting for annual accounting only submit VAT returns once a year. However, they are obliged to make payments on account of the ultimate liability. 

The annual accounting scheme is only available to businesses which regularly pay tax to HMRC, not to repayment traders.

To join the scheme your VAT taxable turnover must be £1.35 million or less.

Not sure which scheme is right for you? Please get in touch.