Flat rate VAT
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Flat rate VAT
For VAT registered businesses one of the schemes available as an alternative to standard VAT accounting. Under standard VAT accounting businesses apply VAT to standard rated sales, and can reclaim VAT on standard rated and reduced rated purchases. The difference between the output VAT (on sales) and input VAT (on purchases) is paid over to HMRC as the VAT liability. With the flat rate scheme, VAT is still charged to customers at the prevailing rate (20% for standard rated transactions) but the VAT liability due to HMRC is calculated at a fixed percentage applied to income received.
The flat rate percentage depends on the business sector. For example an advertising consultant would pay flat rate VAT at 11% on income received, while an accountant would pay VAT at 14.5%. The percentages have been calculated by HMRC as an estimate of the proportion of turnover that each industry pays in VAT. A full list of the flat rate percentages can be found here.
Some businesses, particularly those that can recover little input tax on purchases, can potentially benefit from switching from standard to flat rate VAT. There is the additional advantage of reduced administrative burden due to the ease of calculating the VAT liability solely from sales.
To be eligible to join the flat rate scheme your VAT turnover must be
£150,000 or less (excluding VAT).
If you would like to discuss whether your business could benefit from the flat rate scheme
don’t hesitate to contact us.