Q: I operate a VAT registered business and a friend mentioned that it may be beneficial for me to join the VAT Flat Rate Scheme. Please can you explain what this is?
A: Under standard VAT accounting rules, a VAT registered business will calculate the difference between the output VAT payable in respect of taxable supplies made and the input VAT recoverable on expenditure incurred during the VAT period concerned. The difference between the output VAT payable and the input VAT recoverable is either paid to or claimed back from HM Revenue & Customs. Calculating this amount can be a time consuming process for some businesses.
The Flat Rate Scheme is designed to simplify this process. Under the Flat Rate Scheme, rather than calculating the difference between the output VAT payable and input VAT recoverable, a fixed rate of VAT is instead applied to the flat rate turnover of the business for that period. The rate applied depends on the trade sector in which the business operates. Although this means that input VAT is no longer recoverable on separate items of expenditure, there is an exception to this rule where certain capital assets are purchased at a cost of more than £2000.
In order to join the scheme the annual taxable turnover of the business for VAT purposes must be less than £150,000, excluding VAT, however use of the scheme has many conditions and implications. Whether joining the scheme would be beneficial or detrimental depends on the individual circumstances of the business concerned.
Rennie Welch LLP accept no liability on the basis of this article and detailed advice, taking into account individual circumstances, should be obtained before entering into any transaction.
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