For the year 2015-16 when your turnover exceeds £82,000 over the previous 12 months you are required to register for VAT.
Now usually how much VAT you pay over to HMRC as a business is the difference between the VAT you charge your customers and the VAT you reclaim on your purchases.
However to make it easier for small businesses HMRC have in place a number of different VAT schemes that you can opt in to.
Under the flat rate scheme you pay a fixed rate percentage of VAT over to HMRC depending on your industry. You continue to charge your customers at the full 20% rate and you then retain the difference between the amount you charge customers and what you pay over to HMRC.
The catch is that you are unable to reclaim VAT on your purchases, except for certain capital assets over £2,000.
Joining and leaving the scheme
In order to join the flat rate scheme your expected turnover in the next 12 months must be below £150,000.
You can leave the scheme at any time but you must wait 12 months before re-joining the scheme.
Once your turnover exceeds £230,000 in a 12 month period you must leave the scheme.
What rate do you pay?
The rate that you pay over to HMRC is a percentage of your turnover. The rate is dependent on your business type. To see the HMRC flat rate percentages click here.
• Simplifies the VAT process as you don’t need to worry about VAT on purchases
• If you have a low level of purchases then this scheme can be financially beneficial for you as you get to keep the difference between the VAT charged to customers and the VAT paid over to HMRC
• If you have lots of purchases you are unable to re-claim the VAT back on them.
Essentially if you are a small business with a small amount of purchases this scheme is ideal. If you are a small web design agency of a very staff heavy business then out of all the VAT schemes this is the best bet for you. If you are unsure which scheme would be apporpriate for your business then give us a call.