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Something you may not be aware of as a business owner is the presence of multiple VAT schemes. The flat rate VAT scheme is one of them. The flat rate VAT scheme is a simplified version of VAT where instead of claiming VAT on purchases and paying VAT on sales at variable percentages (0%, 5% and 20% respectively) and balancing the difference, you instead pay one flat rate on your sales VAT. Under the flat rate scheme you: • Pay a fixed rate of VAT. • Keep the difference between what you charge your customers and pay HMRC. • Cannot claim VAT on your purchases with exception of singular capital assets of £2,000 (including VAT). • Your revenue must be less than £150,000 and you must apply to HMRC directly to access the scheme. You can also use a cash based flat rate VAT scheme that only considers VAT for cash you received from your customers during the period (e.g direct debit, or standing order). So, what is the flat rate you pay? The factors depending on how much you pay depend on your industry, for example a business owner who is an accountant or a bookkeeper would pay 14.5% on the scheme while a pub would only pay 6.5% on their VAT. You also get a 1% discount in your first year of operating under the scheme. Therefore, a Pub operating under the scheme within its first year would work only be paying 5.5% If, however your expenses are less than 2 percent of your revenue or your costs are more than 2% but only amount to £1,000. You will pay a higher rate of 16.5% no matter what your industry is. If this is the case in your first year the rate would still be counted as 15.5%. This scheme is ideal for individuals who struggle to maintain proper VAT records during their early years of operation and certain retail businesses start-ups such as post offices, pubs, news agents, wholesaling goods and manufacturing. Depending on your bookkeeping experience as well as your industry and trading it may be to your benefit to use the Flat Rate VAT scheme or the Flat rate cash turnover scheme About the Author – Daniel Gladwin BA Daniel is an associate in the Accounts departments and is a Xero expert. His clients vary in size from start-ups to 1m turnover. Daniel works to ensure that his client’s book-keeping is compliant, up to date and relevant. Daniel gained his degree in Accounting and Finance from The University of Hertfordshire. He is now training to complete his ACA. www.wisteria.co.uk [email protected] +44 (0)20 8429 9245
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