VAT registered small business? Have you considered using the Flat Rate Scheme?

The flat rate scheme is very popular with small businesses and could benefit your business. Here is everything you need to know about it.

What is Flat Rate Scheme and who can join it?

The Flat Rate Scheme is designed to simply record keeping for small business and allows them to apply a fixed percentage to your gross turnover to arrive at the VAT liability.

A business can join the flat rate scheme if its gross taxable turnover including all standard, reduced and zero rated (excluding VAT) it below £150,000.

You are still required to charge VAT in the normal way but would pay a reduced fixed percentage over the HMRC based on your business sector. You cannot reclaim VAT on your purchases unless you purchase capital assets which are over £2,000

One a small business has joined the scheme it can continue to use it until its total income is more than £230,000 (including VAT)

You cannot join the Flat Rate Scheme if;

  • you have left the scheme in the last 12 months.
  • You registered for VAT as a business division in the last 24 months.
  • You use one of the Margin Schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme.
  • You have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year.
  • Your business is closely associated with another business.

An Example of how to calculate your VAT liability on the Flat Rate Scheme

As an example of how the scheme works let’s look at a catering company with £100,000 of net Vatable turnover. VAT calculation would be as follows;

Sales £100,000 + VAT @ 20% £20,000 = £120,000

VAT payable = £120,000 gross income x 12.5% = £15,000 payable to HMRC

As a catering company is unable to reclaim VAT on most its purchases by using the Flat Rate Scheme there may be a financial saving as the percentage of turnover paid over to HMRC is lower than that the VAT 20% it would charge customers.

What are benefits to a small business?

There are several benefits to using the Flat Rate Scheme;

  • Reduced record keeping and simplified VAT calculations
  • 1% discount on the percentage applied for newly VAT registered businesses in the first year of using the scheme
  • For those small businesses in certain sectors such as catering or consultancy where they have little or no VAT to reclaim on purchases they will also benefit from the cash advantage of apply a percentage less than 20%. Such as for example 14.5% for IT consultancy services

Flat rate percentages

Detailed below is a list of the Flat Percentages applicable under the Scheme;

 

Type of business Current VAT flat rate (%)
Accountancy or book-keeping 14.5
Advertising 11
Agricultural services 11
Any other activity not listed elsewhere 12
Architect, civil and structural engineer or surveyor 14.5
Boarding or care of animals 12
Business services not listed elsewhere 12
Catering services including restaurants and takeaways 12.5
Computer and IT consultancy or data processing 14.5
Computer repair services 10.5
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture not listed elsewhere 6.5
Film, radio, television or video production 13
Financial services 13.5
Forestry or fishing 10.5
General building or construction services* 9.5
Hairdressing or other beauty treatment services 13
Hiring or renting goods 9.5
Hotel or accommodation 10.5
Investigation or security 12
Labour-only building or construction services* 14.5
Laundry or dry-cleaning services 12
Lawyer or legal services 14.5
Library, archive, museum or other cultural activity 9.5
Management consultancy 14
Manufacturing fabricated metal products 10.5
Manufacturing food 9
Manufacturing not listed elsewhere 9.5
Manufacturing yarn, textiles or clothing 9
Membership organisation 8
Mining or quarrying 10
Packaging 9
Photography 11
Post offices 5
Printing 8.5
Publishing 11
Pubs 6.5
Real estate activity not listed elsewhere 14
Repairing personal or household goods 10
Repairing vehicles 8.5
Retailing food, confectionery, tobacco, newspapers or children’s clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing not listed elsewhere 7.5
Retailing vehicles or fuel 6.5
Secretarial services 13
Social work 11
Sport or recreation 8.5
Transport or storage, including couriers, freight, removals and taxis 10
Travel agency 10.5
Veterinary medicine 11
Wholesaling agricultural products 8
Wholesaling food 7.5
Wholesaling not listed elsewhere 8.5

 

If you think the Flat Rate Scheme could suit your business and need some advice contact for a free initial meeting;

Telephone: (01424) 211141

website: www.framptonaccountants.co.uk