Making The Most of Being VAT Registered

Making the most of being VAT registered


I thought you might like to know about some ways of gaining financial benefits whilst accounting for VAT correctly. There are three potentially useful accounting schemes available from HMRC. The schemes are:

Maximum turnover on entryVAT Notice
Flat rate scheme£150,000733
Cash accounting£1,350,000731
Annual accounting£1,350,000732                           

With the Flat rate scheme there are a number of benefits:

  • simplified VAT accounting;
  • only claim VAT on capital items with a VAT inclusive value of £2,000 or more;
    able to use:
  • a cash based method;
  • a retailers method;
  • an invoice based method;
  • 1% reduction on flat rate percentage in first year of VAT registration;
  • no need to apply fuel scale charge for private motoring;
  • no need to account for VAT on exported services, although beware of electronically supplied services;
  • no need to account for VAT on imported services.

The Flat rate scheme is a poor choice you if you sell things that attract VAT at the zero-rate, reduced rate or they are exempt from VAT. This is because you have to apply the flat rate percentage to all sales in these categories so you end up paying VAT based on the standard rate on all your sales. Helps reduce the national debt, yet is probably a poor choice for you to do regularly. If you fall into this category you are probably better off looking at either or both the Cash or Annual accounting schemes.

You will be unable to join the Flat rate scheme if you are using the margin scheme for secondhand goods (VAT Notice 718), a Retail Scheme (VAT Notice 727), the Cash accounting scheme or you intend to acquire or have an items that falls into the Capital Goods Scheme (VAT Notice 706/2).

You can use the Flat rate scheme for secondhand goods although you will probably end up paying more VAT than if you use the margin scheme. If you are a retailer a Retail Scheme my be better than using the retail method in the Flat rate scheme. If you are involved in the Capital Goods Scheme you are probably already making exempt supplies, which makes the Flat rate scheme a poor choice for you.

One thing you need to do before leaping into the Flat rate scheme is to decide which flat rate percentage you will have to use. Easier said than done sometimes. Choose carefully as you are unlikely to be able to change it retrospectively if you choose one with a higher flat rate percentage than you need.

I think that’s enough for now. I’ll cover the other schemes in another post.

As always with complex issues it pays to get help at an early stage. You can get in touch with me through the contact page on my website. You can see other VAT articles by me on my blog.

By Robert Killington of VATark

Lime Consultancy are a business finance specialist, we like to offer our contacts and clients quality and varied articles which they value. Thank you to Robert Killington for this piece on VAT. For comments or feedback please add your response above or contact us directly.

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