Is the VAT Flat Rate Scheme best for you?

The standard VAT scheme is when VAT on purchases is subtracted from VAT on sales to calculate the VAT amount owed to/from HMRC. However, under the Flat Rate Scheme (FRS) businesses will instead pay a fixed percentage of your VAT inclusive sales made in the period to HMRC. It’s important to note that under this scheme you won’t be able to claim VAT on any purchases.

In order to join the FRS the business will need to be VAT registered with an estimated taxable turnover of £150,000 or less over the next 12 months. The flat rate percentage used will differ depending on your business – for example, a catering service will use a rate of 12.5%, but a hairdressing salon will use 13%. Please see the link below which shows the relevant percentages used per trade sector:

The first year you join the flat rate scheme, HMRC grant you a 1% discount on your trade percentage.

A reason why some businesses will prefer to use the FRS is due to the simplicity of the method, and the time saved on record keeping, and this will be beneficial for smaller businesses. Depending on your business, there could also be a tax saving.

Companies that make sales for zero rated or reduce rate sales will most likely find this scheme is not beneficial. This is because the FRS percentage will apply to all sales made (there will be some exemptions), meaning that you may end up paying more VAT than if the business were to use the standard VAT scheme. This will also be the same for companies that make lots of VAT purchases as they won’t be able to claim any of this VAT back on the Flat Rate Scheme.

If you’re considering whether the VAT Flat Rate Scheme may be beneficial to your company, please book in a free discovery call with us at PJCO using the following link:

If you would like some assistance or advice on your Limited Company contact us today!

If you would like some assistance or advice on the VAT Flat Rate Scheme, contact us today!

Please get in touch on 01273 441187 or book a discovery call with one of our expert accountants. 

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Charles Lyell

Never call an accountant a credit to his profession; a good accountant is a debit to his profession.

Charles Lyell