VAT Schemes

There are a number of VAT schemes that benefit registered businesses. For example:

Cash accounting

If you are eligible and the scheme is suitable for your business, then using the cash accounting scheme enables you to pay VAT when your invoice is paid and not when you issue the invoice to your customers. You are also restricted when claiming back input VAT on purchases and expenses to the date you pay the bill, not the date you receive the invoice from your supplier.

You can use cash accounting if the estimated VAT taxable turnover during the next tax year is not more than £1.35 million and you can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.

Annual accounting

Annual accounting allows you to send in just one return a year. This offers some relief from the chore of submitting quarterly returns. Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount or, if you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.

Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.

You can also combine these two schemes. In this way you can have the cash flow benefits of using cash accounting and some relief from the administrative chores by submitting one return a year.

Flat Rate Scheme

A business that expects its taxable supplies in the next year to be no more that £150,000 ant its total business income to be less than  £187,500 (including VAT) can opt to join a flat rate scheme. VAT is charged to the customer at the standard rate but the amount of VAT paid over to HMRC is calculated using a reduced percentage dependent on the appropriate business category. Input VAT charged on expenditure is no longer relevant and need not be recorded.

Once in such a scheme, a business can continue to operate in the manner until business income exceeds £230,000.

There is potential to reduce the amount paid to HMRC and time spent recording transactions and administering your VAT affairs.

Before making a decision you will need to take advice as not all businesses will benefit.

15th August 2014

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