VAT – Can you Benefit from the Flat Rate Scheme?

With VAT registered businesses, the amount of VAT paid to HMRC is usually the difference between VAT charged to customers and the VAT paid to suppliers.

Providing certain conditions are met, certain businesses can use the flat rate VAT scheme, under which:

  • There is a fixed rate of VAT which is paid to HMRC each VAT period.
  • The business is able to retain the difference between the VAT charged to customers and the amount paid to HMRC.
  • There is a list published by HMRC determining the flat rate percentage which is to be used – which will depend upon the area of business operated.
  • VAT cannot be reclaimed on expenses – except for certain capital and fixed assets over £2,000.

Eligibility to join the scheme:

A business can join the flat rate scheme if:

  • The business is a VAT registered business.
  • The business expects the VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months.

Leaving the scheme:

A business must leave the scheme if:

  • The business is no longer eligible to be in it.
  • On the anniversary of joining, the turnover of the business in the last 12 months was more than £230,000 (including VAT) – or the business expects it to be at least £230,000 in the next 12 months.
  • The business expects the total income in the next 30 days alone to be more than £230,000 (including VAT).

There are a number of exceptions where businesses are not eligible to use the scheme, including:

  • The business left the flat rate scheme in the last 12 months.
  • You joined (or were eligible to join) a VAT group in the last 24 months.
  • Your business is closely associated with another business.
  • The business has joined a margin or capital goods VAT scheme.

There can be benefits for joining the flat rate VAT scheme. Please contact your local Perrys adviser if you want to explore whether this is potentially beneficial to your business.

Article written by Declan McCusker