If your business has a turnover of less than £150,000 a year it may be worth considering switching to the VAT flat rate scheme. It’s not beneficial to everyone but it’s great for businesses such as consultants who don’t tend to re-sell many items and so have a relatively low level of purchases.
The flat rate scheme is much simpler to administer than the standard one, as you pay HMRC a single percentage of your turnover in each VAT quarter. You would always charge VAT to your clients at 20% but the good news is you only pay it to HMRC at a lower rate, varying between 4% for food and children’s clothes, and 14.5% for labour-only services supplied to the building industry. And in your first year of registration you can take a further 1% off the percentage you use to calculate how much VAT to pay. The only downside is that you can only reclaim VAT on certain capital expenditure of more than £2,000 (excluding VAT).
If you’d like to find out more or apply to join the flat rate scheme please go to www.gov.uk/vat-flat-rate-scheme/join-or-leave-the-scheme (you can swop back at any time). Alternatively get in touch with Michael Burgess on 01782 279615 who can advise whether you would benefit from switching.