It may be beneficial for you to prepare your VAT return using the Flat Rate Scheme. Under the Flat Rate Scheme (FRS) you pay VAT as a fixed percentage of your VAT-inclusive turnover. However, you cannot generally reclaim any input tax (VAT on purchases). It is therefore only likely that the scheme may be beneficial for you if you do not have much input tax that you can reclaim in proportion to output tax to pay.
- The percentage used to calculate the VAT due to HMRC is based on the sector your business is in.
- If you joined the Flat Rate Scheme during your first year of being VAT registered you will also receive a 1% discount on the percentage until the day before the first anniversary of becoming VAT registered.
- You can only join the Flat Rate Scheme if your estimated “VAT taxable turnover” in the next year is £150,000 or less.
- Once you join the scheme you do not need to leave until your total business income is more than £230,000.
- Generally you cannot reclaim any of the VAT that you pay on purchases.
- You may however be able to reclaim the VAT on capital assets which cost more than £2,000.
Flat Rate Scheme may not be beneficial for your business if:
- You regularly receive a VAT repayment under standard VAT accounting.
- You make a lot of reduced rate, zero-rated or exempt sales.
- You buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases.
- If you receive any rental income (residential or commercial).
Examples of the rates are as follows:
|Category of business||Appropriate percentage|
|Computer and IT consultancy or data processing||14.5%|
|General building or construction services||9.5%|
|Labour only, building or construction services||14.5%|
The full list of rates can be found here. It is important that you use the correct rate for your type of business.
HMRC state (in law) “if you act as a consultant and you do not fit into another specific sector, you should choose management consultancy. This sector is not restricted to businesses that fit the traditional idea of management consultant.”
You can use our Flat Rate Scheme calculator to calculate any potential savings. This should be used as an estimating tool only.
If you think that the Flat Rate Scheme would be beneficial for you or you would like further information please contact Green Accountancy.