The Flat Rate VAT scheme is an alternative method for calculating your VAT that allows you to pay a reduced rate of VAT on your sales without being able to reclaim VAT on purchases. Although there are certain allowances, in the most part any business on the Flat Rate VAT scheme need only concern themselves with VAT on sales.
Here are the key feature of the Flat Rate VAT scheme:
- Pay a reduced rate (e.g. 12%) of VAT to HMRC based on the flat rate turnover (see below).
- The business will be unable to reclaim VAT on purchases (with limited allowances).
- All invoices are raised at the standard rate of VAT, your VAT registered clients will be able to reclaim the full amount.
- The VAT turnover must be £150,000 or less (excluding VAT).
##What is the Flat Rate Turnover?
The flat rate turnover is the VAT inclusive total of your sales from which your VAT liability will be calculated. For example if your flat rate turnover for a quarter is calculated to be £100,000 and your Flat Rate Percentage is 10%, you will need to pay £10,000 to HMRC as your VAT liability.
##VAT Flat Rates
On joining the scheme HMRC will instruct you on what flat rate VAT percentage you should use, this will be based on your industry and business activities.During your first year on the Flat Rate Scheme you will be entitled to apply a 1% discount.
To see a full list of business sectors and corresponding VAT rates, please see here.