We have added Profit from VAT to the long list of these verbal puzzles that we use in the office, our other favourites are ‘definitely maybe’, ‘random order’, ‘original copy’ and ’virtual reality’! The Flat Rate Scheme for VAT is available to businesses that have a taxable turnover of less than £150,000 for the next 12 months. Taxable turnover is the total supplies excluding VAT and the value of any capital assets sold. We have included the headlines below and invite you to contact us to look further into the suitability of the Flat Rate Scheme for your business.
- The Flat Rate Scheme for VAT is aimed at reducing the need to calculate and record the output and input VAT due to HMRC and applying a flat rate percentage to the gross sales instead
- The percentage is selected from the appropriate percentage of the business sector, for example computer and IT consultancy is 14.5%
- The percentage is reduced by 1% for the first year of becoming VAT registered
- This scheme is suitable if you do not incur large amounts of expense
- If you incur £2,000 on capital purchases in some circumstances you can claim back VAT
- You must leave the scheme if your business income exceeds £230,000
An example of the Flat Rate Scheme is as follows:
- FRS Limited is an IT consultancy business that has made sales of £25,000 for the first VAT quarter
- It has charged its client’s 20% VAT VAT on sales which is £5,000. Gross sales are therefore £30,000
- The Flat Rate Scheme percentage is 14.5%. The VAT due to HMRC is £4,050 (£30,000 gross sales x 14.5% – 1% for first year of VAT registration).
- FRS Limited collects £5,000 VAT from customers and pays over £4,050 to HMRC – £950 is retained by FRS Limited and is to cover the VAT on purchases and expenditure in the quarter