Tuesday, June 17, 2008

Can you benefit from joining the VAT Flat Rate Scheme?

The VAT Flat Rate Scheme is a scheme introduced by HMRC to streamline their VAT checking procedures.

If your business has a turnover less than £150,000, you are eligible to apply. How it works is fairly simple - for your given businesss sector, you are assigned a flat rate percentage (for example, most IT contractors work at 13%).

Under this scheme, the VAT due on income is calculated as ( flat rate percentage ) X gross income.

However, it should be noted that your business cannot reclaim the VAT on business expenses (unless the individual item is greater than £2,000 net).

In addition, for the first year of VAT registration, HMRC allows a further 1% discount as an incentive, reducing the output VAT even further.

In summary, for many businesses, it is well worth registering for the flat rate scheme as it can reduce your VAT quarterly payment significantly. Please contact us for a free review to see if you could benefit from using the scheme.

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