Is the VAT Flat Fee Scheme Proper For My Enterprise?

We’ve spent over twenty years serving to enterprise house owners perceive key monetary ideas, so we all know how complicated they are often. Even in the event you’ve acquired your self arrange with the prime accounting software program, areas like value-added tax (VAT) can nonetheless be a minefield.

The VAT Flat Fee Scheme was launched to make issues less complicated for small enterprise house owners, however is it best for you? Our easy, easy-to-follow information will break down what the scheme is, see in the event you’re eligible to participate, and clarify the way it can profit your corporation.

What’s the VAT Flat Fee Scheme and the way does it work?

For many new enterprise house owners, understanding VAT and how you can pay it may be daunting. The VAT Flat Fee Scheme was launched to make bookkeeping simpler for small companies within the UK, simplifying the way in which they file and make VAT funds.

Usually, you would want to calculate the quantity of VAT per transaction: the quantity you pay to (or declare again from) HMRC is the distinction between the VAT you cost to your prospects, and the VAT you pay by yourself purchases.

Nevertheless, with the VAT Flat Fee Scheme, your corporation pays a hard and fast quantity of VAT. You’ll hold the distinction between what you cost to your prospects, and what you pay to HMRC.

Typically talking, this implies you’ll pay a decrease share than the usual 20%. Simply take into account, on the flat price scheme: you can’t reclaim VAT on the purchases made by your corporation. Aside from some particular capital property over £2000.

Your VAT Flat Fee Scheme share will rely upon the kind of enterprise you run. You could find a full record of enterprise varieties and charges by leaping all the way down to the part under.

To work out what you pay, you have to multiply your VAT flat price by your ‘VAT inclusive turnover’. VAT inclusive turnover contains each your corporation’s revenue, as properly the VAT paid on that revenue.

It would sound a little bit complicated at first, however let’s put this right into a state of affairs to make it extra digestible:

• Let’s say you run a hairdressers, and also you cost a shopper £60 for a hair therapy. You add the usual 20% VAT, making it £72 in whole.
• For hairdressing (or different magnificence therapy companies) the VAT flat price is 13%. So meaning the flat price cost will likely be 13% of £72: £9.36.

So it’s your commonplace bill quantity, plus the usual VAT 20% price x the flat price for your corporation.

It’s additionally good to know that you simply’ll get a 1% low cost if that is your first 12 months as a VAT-registered enterprise.

Your share price will likely be fully dependent in your kind of enterprise, you’ll find the complete record of flat price UK percentages within the desk under:

Enterprise kind	Fee
Accountancy or book-keeping	14.5
Promoting	11
Agricultural companies	11
Another exercise not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Enterprise companies not listed elsewhere	12
Catering companies together with eating places and takeaways earlier than 15 July 2020	12.5
Catering companies together with eating places and takeaways from 15 July 2020 to 30 September 2021	4.5
Catering companies together with eating places and takeaways from 1 October 2021 to 31 March 2022	8.5
Catering companies together with eating places and takeaways from 1 April 2022	12.5
Pc and IT consultancy or knowledge processing	14.5
Pc restore companies	10.5
Leisure or journalism	12.5
Property company or property administration companies	12
Farming or agriculture not listed elsewhere	6.5
Movie, radio, tv or video manufacturing	13
Monetary companies	13.5
Forestry or fishing	10.5
Common constructing or development companies*	9.5
Hairdressing or different magnificence therapy companies	13
Hiring or renting items	9.5
Lodge or lodging earlier than 15 July 2020	10.5
Lodge or lodging from 15 July 2020 to 30 September 2021	0
Lodge or lodging from 1 October 2021 to 31 March 2022	5.5
Lodge or lodging from 1 April 2022	10.5
Investigation or safety	12
Labour-only constructing or development companies*	14.5
Laundry or dry-cleaning companies	12
Lawyer or authorized companies	14.5
Library, archive, museum or different cultural exercise	9.5
Administration consultancy	14
Manufacturing fabricated steel merchandise	10.5
Manufacturing meals	9
Manufacturing not listed elsewhere	9.5
Manufacturing yarn, textiles or clothes	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Images	11
Submit workplaces	5
Printing	8.5
Publishing	11
Pubs earlier than 15 July 2020	6.5
Pubs from 15 July 2020 to 30 September 2021	1
Pubs from 1 October 2021 to 31 March 2022	4
Pubs from 1 April 2022	6.5
Actual property exercise not listed elsewhere	14
Repairing private or family items	10
Repairing automobiles	8.5
Retailing meals, confectionery, tobacco, newspapers or kids’s clothes	4
Retailing prescription drugs, medical items, cosmetics or toiletries	8
Retailing not listed elsewhere	7.5
Retailing automobiles or gas	6.5
Secretarial companies	13
Social work	11
Sport or recreation	8.5
Transport or storage, together with couriers, freight, removals and taxis	10
Journey company	10.5
Veterinary drugs	11
Wholesaling agricultural merchandise	8
Wholesaling meals	7.5
Wholesaling not listed elsewhere	8.5

It’s additionally essential to remember that in case your good prices lower than 2% of your whole turnover, or £1000 if it’s greater than 2%, then you’ll be labeled as a ‘restricted prices enterprise’. This implies you’ll be topic to a far greater 16.5% price, so it’s necessary to find out if this is applicable to your corporation earlier than making use of to the scheme.

Am I eligible for the VAT Flat Fee Scheme?

The important thing standards for eligibility is the VAT Flat Fee Scheme threshold: if your annual turnover (earlier than VAT) is as much as, however not more than, £150,000 per 12 months.

Nevertheless, there are another necessary exceptions that would possibly exclude you from the scheme that you simply want to concentrate on:

• Should you’ve left the scheme inside the final 12 months, you possibly can’t rejoin.
• Should you’ve dedicated any VAT offences inside the final 12 months.
• Should you’ve joined, or in the event you had eligibility for becoming a member of, inside the final 24 months.
• You’ve already joined a margin or capital items VAT scheme.

You can also’t be part of the VAT Flat Fee Scheme in the event you’re intently related to one other enterprise. Mainly, you’re deemed an ‘related’ enterprise in the event you’re underneath the primary affect of a separate enterprise, one that offers instructions to your corporation.

Should you’re feeling not sure as as to if this may apply to your corporation, we’d suggest contacting HMRC immediately for help.

You additionally received’t have the ability to use the scheme alongside the Money Accounting Scheme. You’ll want to make use of the scheme-specific cash-based turnover technique: this entails making use of your flat-rate share to any VAT inclusive provides for which you’ve been paid inside the accounting interval.

Whether or not or not it is best to be part of the VAT Flat Fee Scheme is a fancy query, and can fully rely in your particular enterprise circumstances.

We’d suggest chatting with your accountant first, or a specialist, to get clear understanding of whether or not the scheme is best for you. Should you don’t have one, you should use our information to discovering the precise accountant for your corporation.

The primary profit for becoming a member of the scheme is that it will make accounting a lot easier. It makes it considerably simpler to calculate and pay the VAT you might be due, which is especially useful throughout that aggravating time when you have to submit your tax return.

Crucially you possibly can, in principle, save more cash by being a part of the flat price scheme as your fastened charges might be decrease than the usual price.

Nevertheless, how useful the scheme will likely be for you’ll rely in your circumstances. For instance, in the event you purchase and promote items from exterior the UK this may occasionally make the scheme too complicated to make use of.

The simplicity of the Flat Fee Scheme additionally tends to favour smaller companies with decrease transaction totals. Should you’re a extra difficult enterprise with a better quantity of transactions, it’s possible you’ll be higher off with out the scheme.

Equally, if you’re making a lot of VAT exempt gross sales, you possibly can find yourself paying extra in VAT. The identical goes for zero-rated gross sales, as a lot of these can even value you extra in VAT in the end.

First issues first: you’ll should be already registered for VAT in an effort to be part of the Flat Fee Scheme. Should you’re not registered for VAT, you possibly can be part of the VAT Flat Fee Scheme as a part of the identical course of.

You could find extra data in our full information to registering for VAT.

Should you’re already registered for VAT and need to be part of the Flat Fee Scheme you are able to do so both on-line through the federal government portal or by submit. You’ll want to take action utilizing type VAT600FRS.

To affix, you will want the next handy:

1. The identify of your corporation because it seems in your VAT Certificates of Registration, and the handle of your corporation.
2. Your VAT registration quantity.
3. A contact cellphone quantity.
4. The kind of enterprise you run – this would be the major exercise, outlined by essentially the most related class within the desk above.
5. The flat price share for your corporation kind (once more, use the desk above).
6. The beginning date from which you’ll start utilizing the scheme: HMRC states that is often from the beginning of the VAT interval after they obtain the applying.

Should you utility has been profitable, you may be notified via your on-line VAT account (or via the submit, in the event you’ve used a paper utility).

What if I need to depart the scheme?

You’re free to go away the scheme anytime you select. You simply have to contact HMRC along with your identify, signature, VAT quantity and enterprise identify and handle. You may contact them via electronic mail, submit or by cellphone.

Simply take into account, as soon as you allow the scheme, you’ll want to attend no less than a 12 months earlier than rejoining once more.

In Abstract

So long as your VAT turnover meets the brink of £150,000 or much less, excluding VAT, the VAT Flat Fee Scheme is usually a nice choice for small enterprise house owners who need to simplify their VAT funds to HMRC and have a better time with their bookkeeping.

Whether or not it’s best for you will rely in your circumstances, however it’s usually suited to companies with a low transaction quantity. We’d suggest speaking to an accountant or specialist to get extra tailor-made recommendation as as to if you have to be becoming a member of the scheme.

The following step for enterprise house owners is ensuring they absolutely perceive Making Tax Digital, and are compliant with conserving digital VAT data.