UHY Ross Brooke Chartered Accountants

Is the VAT flat rate scheme better for your business?

vat - need to know

The VAT flat rate scheme is a simplified method of calculating VAT that can benefit small businesses, but it’s worth taking time to consider the advantages and disadvantages carefully.

Advantages of paying VAT under the flat rate scheme

The VAT flat rate scheme is easy to use. It simplifies the calculation of VAT payable by using a fixed percentage based on the type of business.

Businesses only need to calculate and pay a fixed percentage of their sales which is less complicated and easier to calculate.

The scheme can provide cash flow benefits to small businesses if it results in paying less VAT than under the standard VAT scheme.

The scheme is easy to join, and businesses can leave it at any time.

Disadvantages of paying VAT under the flat rate scheme

Under the scheme, businesses cannot claim back VAT on most purchases, except for certain capital assets over £2,000, so it may not be the right choice if you make large capital investments.

The fixed rate percentage may not accurately reflect a business’s actual VAT liability, so some businesses may end up paying more VAT than they would under the standard VAT scheme.

The flat rate scheme is only available to businesses with an annual turnover of up to £150,000, and is sector-specific, so businesses in certain sectors may not be eligible for the scheme anyway.

Flat rate VAT or Standard VAT scheme?

It is essential to weigh the pros and cons of the VAT flat rate scheme before deciding whether to join and taking advice from a VAT specialist accountant if you are in any doubt.

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