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VAT Flat Rate Scheme annual review | How does VAT Flat Rate Scheme work?

VAT Flat Rate Scheme annual review | How does VAT Flat Rate Scheme work?

What is the VAT Flat Rate Scheme?
If using the VAT Flat Rate Scheme, businesses pay VAT as a fixed percentage of their VAT-inclusive turnover. The actual percentage used depends on the type of business. The scheme has been designed to simplify how a business accounts for VAT and reduce the administration costs of complying with the VAT legislation.

Who is eligible for the VAT Flat rate scheme?
The VAT Flat Rate Scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything a business sells during the year. It includes standard, reduced rate or zero-rate sales and other supplies. It excludes the actual VAT charged, VAT-exempt sales and sales of any capital assets.

How Should I Use the VAT Flat Rate Scheme?
As part of an annual review, it is recommended that businesses using the scheme continue to qualify to use the scheme. Businesses that have joined the scheme can continue using it provided their total business income does not exceed £230,000 in a 12-month period. There are also special rules where increased turnover is temporary.

A limited-cost trader test was introduced in April 2017. Businesses that meet the definition of a 'limited cost trader' must use a fixed rate of 16.5% for the scheme. Businesses defined as limited-cost traders may find it more beneficial to leave the scheme and account for VAT using traditional VAT accounting methods.
There is also a first-year discount for businesses in their first year of VAT registration of 1%.

Contact Us 
If you think you qualify for the VAT flat rate scheme. Contact a member of our Moore (South) Specialsit tax team. We can help you examine your turnover and ensure your eleibigle for this scheme.