Would the VAT Flat Rate Scheme benefit me?

Nov
22
Posted 2013 by admin

Businesses with an annual value of taxable supplies of not more than £150,000 may be eligible to use the optional Flat Rate Scheme.

Traders who join the scheme can avoid the need to account individually for output VAT on their sales and input VAT on their expenses etc. Instead they can simply calculate their net VAT liability as a percentage of their turnover.

The flat rate percentage will depend on the trade sector into which their business falls for the purposes of the scheme

For example:

A photographer undertakes some portraits for unregistered private customers and also does some commercial photography work. In a VAT period, the commercial work amounts to £10,000 and the photographer will issue an invoice for £12,000 (£10,000 plus VAT). The portrait work amounts to £7,000 and invoices will be issued for £8,400 (£7,000 plus VAT).

During the course of the VAT period the photographer will not have to calculate the input VAT on expenses or photographic materials etc. At the end of the period he simply totals the value of gross sales in the period ie £20,400 and multiplies that figure by the flat rate percentage for photography businesses of 11%. The resulting amount of £2,244 will be the figure paid to HM Customs and Excise.

Therefore, if he has few expenses on which he has incurred input VAT, he could potentially have saved himself over £1,000 in VAT in that period alone (£3,400 – £2,244).

There are a number of factors which need to be considered when deciding whether or not to enter this scheme and professional advice should always be sought first.

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