Small businesses with a gross turnover up to £150,000 may opt for VAT flat rate schemes. Under the schemes, the business may then dispense with the requirement of recording of the input VAT on each individual purchase. This may save time in administration for some businesses although they will still need to record the gross value of purchases for corporation tax purposes if it is a company or income tax purposes if it is a sole trader or a partnership.
Under the flat rate schemes, the business still charges standard rate of 17.5% VAT (with effect from 1 December 2008 to 31 December 2009, the rate is reduced to 15%) to their customers but account for and pay over a lesser figure to the HM Revenue and Customs.
The business continues to issue sales tax invoices to their VAT registered customers. These invoices show the normal rate of VAT for the supply and the customers will be able to reclaim the input the normal way.
The difference in VAT between the two rates is kept by the business. This is in place of the input tax that would otherwise have been claimed under the standard VAT schemes, and used to reduce the VAT payment to HM Revenue and Customs.
For capital assets with a VAT inclusive value of £2000 or more, the VAT can be recovered in the normal way. This concession cannot be used where the assets are bought for resale, leasing or let or use within one year or covered by the capital goods scheme.
The actual rate of VAT payable to VAT office is dependent upon the trade sector in which the business falls for the purpose of the schemes. There is a wide spread applicable percentages ranging from 5% to 14.5%.
The business must leave the flat rate schemes when its gross sales exceed £150,000.
Further reference can be made to VAT notice 733 flat rate scheme for small businesses which is available on the HMRC internet site.
Canterbury Accountancy - UK London Chartered Accountants - Making VAT administration simple for businesses.
