HMRC have issued a new version of the flat rate scheme notice. Some important points about the flat rate scheme are:
1 If your expenditure on “goods” is less than £250 OR less than 2% of your turnover in any quarter, then you must use the scheme rate of 16.5%. This test must be done every quarter, which can mean some quarters you use your normal scheme rate, and other quarters you will use 16.5%.
2 There is a 1% discount on all rates, including the 16.5% default rate, for the first year of VAT registration. This is not necessarily the first year of using the flat rate scheme.
3 Exempt supplies, such as rental income,are included in the flat rate scheme calculations.
4 ‘Associated’ businesses cannot join the Flat Rate Scheme. Associated businesses include ones that are closely bound by financial, economic and organisational links.
5 When deciding on your correct flat scheme rate, if there is not a sector that mentions your business, look at the sectors for ‘Businesses not mentioned elsewhere’. There’s one for retail, one for business services and one for manufacturing.
6 Only use ‘Any other activity not listed elsewhere’ if your business does not fit with anything else.
7 You must tell HMRC when joining and leaving the scheme. If leaving the scheme you cannot rejoin the scheme within the next 12 months.
8 You can claim bad debt relief as a separate calculation, even if using the cash based flat rate scheme.
9 Whilst most input tax cannot be claimed when using the flat rate scheme, the input tax on purchases of single physical items costing £2000 or more (including VAT) can be claimed.