The flat rate scheme is one of the simplified ways HMRC offers for calculating VAT. While you still have to charge VAT on sales, you do not have to record VAT on all of the individual entries. You may well be able to save money by registering. There is one simple calculation to use every quarter (or VAT period) which is to multiply the total sales including VAT by a fixed percentage depending on your trade sector. These are set out by HMRC and the table can be found on HMRC website. These are based on the broad spectrum of businesses in each sector and some may win and some lose. To see if it would be beneficial for you I have provided a calculator on Google docs. The process is then as follows:
1. Enter the Flat rate percentage for your sector
2. Use the Spinner to enter your turnover in £000s
3. Work out the input VAT you claim every year (you should exclude VAT on any large capital items >£2k as these can be claimed in addition), this is the figure in box 4 of each VAT return
4. This will show whether it is advantageous to register under the flat rate scheme or continue under the normal basis
5. You can use the spinner to change the turnover up or down, but do not forget to alter the input VAT if that will vary with turnover
Useful facts:
1. There is a 1% reduction in the rate you can use if you register within 1 year of first VAT registration (only to the anniversary of registration)
2. Growing businesses who have high initial costs may find it advantageous to use the normal basis initially but then transfer to the flat rate scheme when fixed costs make up a smaller proportion of turnover
3. To register for the scheme complete the registration document
This guide is given for information only but may not apply to your specific circumstance so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”