Are you a VAT registered business?
Do you expect your taxable sales (excluding VAT) to be less than £150,000 in the next 12 months?
If you have answered YES to both of the above questions then have you considered the potential benefits of using the Flat Rate Scheme?
Using this scheme can simplify your VAT return process and save you time. You will pay to HMRC a lower rate of VAT based on your gross income. You will ignore any purchase VAT when preparing your VAT return. However, you can claim VAT on purchases of capital items valued at £2,000 or more (including VAT).
The rate of VAT your business pays to HMRC depends upon your trade. Your trading activity will determine whether the Flat Rate Scheme can also bring a financial benefit.
If your business spends less than £250, or 2% of gross sales on goods in any quarter the Flat Rate Scheme will probably not be for you. In these circumstances you will be classed as a ‘Limited Cost Trader’ and a higher flat rate of VAT will apply to your income.
You also need to be careful if you have income from other sources such as investment property. This income may also become VATable under this scheme.
HMRC’s guidance can be found at gov.uk/vat-flat-rate-scheme. Alternatively, speak to a professional with experience and knowledge of VAT. If your business would like advice specific to your own circumstances, please get in touch with us for a free consultation at Pennine Accounting in Littleborough.