The Flat Rate VAT Scheme is designed to help make the whole VAT Return process easier for small businesses. Through the scheme, businesses pay the same amount of VAT but don’t have to submit as much paperwork as with other VAT schemes.
When using this scheme, businesses keep the difference between the amount of VAT they have paid to HMRC and the amount of VAT paid by customers.
Unlike other VAT schemes, businesses using the Flat Rate Scheme can’t usually reclaim VAT on purchases made for the company – though there are some exceptions for capital purchases worth over £2,000.
What are the advantages of using the Flat Rate Scheme?
There are a number of advantages for businesses using the Flat Rate Scheme, including:
- The simpler system means less paperwork
- There is no need for partial exempt calculations
- No fuel scale charge needs to be paid for businesses paying road fuel
- HMRC offer 1% discount for newly VAT registered businesses within the first 12-months of registration
The scheme can be used by partially exempt businesses, and can be used alongside the Annual Accounting Scheme where businesses submit one VAT Return per year and make payments towards their final VAT bill in instalments.
Am I eligible for the Flat Rate VAT Scheme?
A business is eligible to join the Flat Rate scheme if both of the following conditions apply:
1. The value of the sale of your taxable goods or services in the next year will not exceed £150,000 (excluding VAT). This figure does not include anticipated sales of capital assets but does include:
- standard, reduced and zero-rated goods or services
- the sale of second-hand goods sold outside the margin scheme
- the sale of investment gold detailed in the VAT Act Section 55
2. The value of the sale of your taxable goods or services in the next year will not exceed £191,500 (including VAT). This figure does not include the sale of capital assets but does include:
- all items listed in point 1
- the value of exempt goods or services (such as rent, lottery commission, bank interest etc)
- any other income received or receivable (such as non-business etc)
The Flat Rate Scheme can be used until your total turnover exceeds £230,000 – excluding one-off increases in sales. You will need to notify HMRC of these in order to stay in the scheme.
12 months after joining the scheme, you must check that your turnover still meets these requirements. If you know that you will exceed the £230,000 threshold within the next 30 days, you will have to leave the scheme. However, you may be eligible to stay in the scheme if HMRC is satisfied that the total value of your income in the next 12 months will not exceed £191,500.
You cannot join the Flat Rate scheme if:
- you are not VAT-registered
- you use the second-hand margin scheme or auctioneers’ scheme
- you are required to use the tour operators’ margin scheme
- you are required to use the capital goods scheme
- you stopped using the Flat Rate Scheme in the previous 12 months
- you have accepted a compound penalty offer or have been convicted of an offence in connection with VAT in the last 12 months
- you have been assessed to a penalty for conduct involving dishonest conduct in the last 12 months
- you have been registered for VAT in a VAT group in the last 24 months
- you have been registered for VAT in a VAT division in the last 24 months
- you have been eligible for a VAT group registration in the last 24 months
- your business has been associated or closely linked with another business within the last two years
If you would like to apply for the Flat Rate VAT Scheme, please get in touch with us here at Magpie Accountancy for assistance.