VAT schemes

If your VAT taxable turnover goes over £82,000 in any twelve month period you HAVE TO register with HM Revenue & Customs (HMRC) and immediately charge VAT on your sales. You have 30 days to register.

In practical terms, if your turnover is nearing £82,000 you need to check your turnover monthly for the 12 months up to the end of the previous month. If you register late for VAT you must pay what you owe from when you should have registered.

If you’re not sure if you need to register for VAT we can check this for you.

Calculating and dealing with VAT

The amount of VAT a business pays or claims back from HMRC is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

VAT returns are usually prepared every 3 months (a VAT quarter), but HMRC understand that this can be onerous for small business owners and so they came up with a number of schemes to help.

These include:

1) Cash accounting

2) Annual accounting

3) Flat rate scheme.

Cash Accounting

With cash accounting, VAT due on your sales does not have to be accounted for until you have received the cash. If your business struggles with bad debts this scheme could be beneficial for you.

Annual Accounting

This makes accounting for VAT easier, as the return is filed once a year. Payments on account of VAT are paid over the year, with a balancing payment due within two months after the end of the year.

Flat Rate Scheme

Businesses can join the flat rate scheme if their VAT taxable turnover for the next year should be less than £150,000.

The Flat Rate Scheme is great for small businesses as you pay a fixed rate of VAT to HMRC, which makes the accounting and completion of the VAT return much easier.

The VAT flat rate you use depends on your business type. For example Estate Agents pay 12%, Hairdressers and Beauticians 13% and Restaurants 12.5%.

You might save money by joining the Flat Rate Scheme. The VAT you pay under it could be less than the VAT paid calculated normally, particularly if you don’t have many expenses. Small business owners are unaware of this. If you’re worried about VAT or want to discuss if any of the VAT schemes above could be better for you and your business, please contact us.

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