Making the management of business finances less complicated is what we are passionate about here at Hurren. Our accounting services are designed and delivered with this in mind to ensure the sole traders and businesses we work with have all they need to save time and money. The VAT Flat Rate Scheme is an underrated government initiative that makes the management of company accounts more straightforward, but is it really as simple as it sounds? And, more importantly, is joining the scheme the right step for you?
Devising and submitting VAT returns is one accounting process that gives most businesses a big headache. The VAT Flat Rate Scheme offers a simplified way of paying or claiming back VAT from HM Revenue and Customs (HMRC).
Standard VAT accounting is a rather convoluted procedure. Unlike with standard VAT, the flat rate enables you to charge and invoice your customers at the standard rate while you pay a fixed rate percentage to HMRC. With the VAT Flat Rate Scheme, you get to keep the difference between what you charge to customers and pay to HMRC to unlock small but useful tax savings. Businesses using the VAT Flat Rate scheme have reportedly reduced their VAT liability by 1% on average.
You can work out your flat rate under the scheme here.
Am I eligible?
Not everyone is eligible to join the VAT Flat Rate Scheme. When the scheme was initially introduced, it was accessible to small businesses and sole traders. With new rules announced in 2017, sole traders that are defined as ‘limited cost traders’ are not eligible in the same way other businesses would be and must pay a special percentage as a result.
If you are not a limited cost trader and are registered for VAT with a VAT taxable turnover of less than £150,000, you can join the Flat Rate Scheme. Those who have left the scheme during the past year, joined a VAT group or registered for VAT as a business division in the last two years, or joined a margin or capital goods VAT scheme are not eligible to join the VAT Flat Rate Scheme. Businesses who have committed VAT evasion or another VAT related offence can also not use the scheme.
How can I join?
Joining the scheme couldn’t be easier. You can register online in the same way you register for VAT. Alternatively you can submit the VAT600 FRS form by post. Confirmation of your membership to the scheme will be supplied shortly after. You can choose to leave the scheme in the future if you are no longer eligible, or if your turnover is or is expected to be in excess of £230,000.
For further advice about whether joining the VAT Flat Rate Scheme is right for you, please contact our accountants.