Many of our small business clients (turnover must be less than £150,000 to join the scheme) either use or are interested in this way of accounting for VAT to HM Revenue & Customs, as it simplifies their book-keeping requirements, saving them valuable time. Perhaps more critically it also saves mistakes, as you do not have to be a VAT expert and decide what you can and can’t claim input VAT on and therefore it offers peace of mind.
In terms of whether it can also save the business money though, then that is a “number crunching” exercise that you may want to ask us to help with!
When registering you must choose the flat rate % that most accurately reflects the industry that your business operates in and you actually receive a 1% discount on this % for the first 12 months of being in the scheme (if it is also a new VAT registration).
However, with all “simplified” schemes such as this there are also a few pitfalls to be aware of! The %’s that relate to each industry bracket take into account zero and exempt sales and an allowance for VAT on purchases. A classic example of a transaction that someone with a VAT registration would never normally suffer a VAT charge on is the sale of a company car, however under the flat rate scheme this example of an exempt sale is chargeable!
Clearly businesses for which the scheme is not suitable are those that normally receive repayments of VAT, those which have a lot of zero and exempt sales and those that buy a lot of standard rated items.
If in any doubt please speak to us for advice.
Provided by Ian Cooke ACA (Director)