UK's VAT Flat Rate Scheme - Taxation Insight- Its all about taxation

UK’s VAT Flat Rate Scheme

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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:

You should be VAT Registered Business.
Your VAT taxable turnover should be GBP 150,000 or less excluding VAT in the next 12 months.

Exception:

If you falls in below exceptions, then you would not be able to take advantage of VAT Flat rate scheme:

You left the scheme in the last 12 months.
You committed any offence in last 12 months like any tax evasion.
In case you have joined in VAT group in last 24 months.
If you are registered as a Business division in last 24 months.
your business is closely associated with another business
you’ve joined a margin or Capital Goods VAT scheme.
Your turnover in the last 12 months was more than GBP 230,000 (including VAT), or you expect to be in the next 12 months.
You expect your total income in the next 30 days alone to be more than GBP 230,000 (including VAT)

How to Join the Scheme

In order to join the scheme, tax payer require to fill form VAT600 FRS.
Once the form is duly filled with requisite information, the tax payer has two options either to mail such form to [email protected] or you may send such form through post to

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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