The Flat Rate Scheme is a method of accounting for VAT, which could save you time, smooth cash flow and best of all, could result in more cash in your pocket!
If your taxable turnover for the next 12 months is expected to be less than £150,000 – you qualify.
If you don’t suffer a lot of VAT on purchases, for example if you are a service based business, the scheme is probably for you.
How does it work?
The amount of VAT payable to HMRC is calculated by multiplying your gross turnover by a percentage agreed with HMRC. An example is detailed below:
Business Type: Travel Agent
Percentage payable: 10.5%
£
Net Turnover
|
100,000
| ||
VAT Charged (A)
|
20,000
| ||
Gross Received
|
120,000
| ||
VAT payable to HMRC (B)
|
12,600
| ||
Under Flat Rate scheme
| |||
Flat Rate “Profit” (A-B)
|
7,400
| ||
This amount is liable to Tax
|
(1,554)
| ||
Assumed 21%
| |||
Additional “Cash” in your pocket
|
£5,846
|
This example assumes an immaterial level of VAT is suffered on purchases.
Following joining the flat rate scheme and agreeing the percentage payable, you receive a 1% discount in your first year of adopting the scheme. Don’t worry if you intend to make a capital purchase of over £2,000 (VAT inclusive) as the VAT can be reclaimed as normal on these items.
What to do next?
If you feel your business could benefit from the scheme please call Gareth Perrett on 01902 773933 or email garethp@crom.co.uk to arrange a free no obligation consultation to assess your suitability for the scheme.
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