For businesses wanting to reduce the administrative burden felt when operating VAT, the flat rate scheme could be advantageous, and Green & Co can assess and advise you on whether this scheme is the best course of action for you and your business.
In general, the flat rate scheme can offer many benefits for businesses, such as:
The flat rate scheme will smooth your cashflow as you will know what VAT you need to pay on your takings.
You don't have to record the VAT you charge on every sale and purchase, reducing the time spent on the books.
If you are in your first year of VAT registration
, there is a first year discount!
There are fewer rules, so less time will be spent on working out what you can and can't reclaim, also meaning that there will be less chance of mistakes, along with peace of mind that you are doing it right.
How does it work?
With the flat rate scheme, a set percentage is applied to the turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase you make. This rate varies depending on the sector in which the business operates. However, the scheme is only advantageous if it does not result in additional VAT liabilities.
The example below shows how the flat rate scheme can be beneficial if you make standard rated supplies and you don't usually incur VAT on your purchases:
Annual net turnover - £50,000
VAT @ 20% - £10,000
Gross turnover - £60,000
If the flat rate for this business was 12%, they would only have to pay £7,200 to HMRC. Assuming this business has no input VAT to recover, they would save £2,800 per year on the flat rate scheme.
To find out more about the flat rate scheme and whether your business would benefit from it, please contact us.