In a normal circumstances, tax payers pays or claim refund for difference of VAT charged from the customer and VAT paid on purchases made by such tax payer towards HMRC, however, with Flat rate scheme, tax payers only required to pay fixed rate of VAT towards HMRC irrespective of the difference between VAT charged to the customer and VAT paid to the HMRC.
This scheme normally targets small businesses whose turnover is GBP 150,000 or less (excluding VAT), however, one important condition that tax payer is not allowed to reclaim VAT on purchases except for certain capital asset over GBP 2000.
Eligibility for Joining the Scheme and Exception
In order to Join Flat Rate Scheme, Tax payer should be:
Exception:
If you falls in below exceptions, then you would not be able to take advantage of VAT Flat rate scheme:
How to Join the Scheme
BT VAT
HM Revenue and Customs
BX9 1WR
Please note, once you have opted for leaving the scheme, then you may send write to HMRC and send it to above stated address. Once you have opted out from the scheme, then you have to wait for another 12 months to rejoin the scheme.
What Benefit you might expect from Flat rate Scheme
Flat rate scheme is very advantageous to the businesses, where they would not require to keep records for the purchases in order to reclaim input VAT and further they only need to calculate their turnover and pay VAT at specified rate.
The VAT rate would depend upon the industry in which you are operating as HMRC has specified different rate for different industry like for advertising- VAT rate is 11%, for accountancy and book keeping- The Flat rate is 14.5% and likewise.
You would be getting 1% of discount in VAT rate for the very first year as a VAT registered business.
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Team Taxation Insight.
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