VAT Schemes for small businesses

When was the last time you checked if you were on the best VAT scheme for your business?  I bet you £5 now that when you registered  for VAT till now you have not double checked whether you are on the best VAT scheme for you.  That’s right there is more than one type of scheme and there are several ways of dealing with each scheme and frequency of the returns.

Use this tool to find out if what schemes you are eligible for, it costs you nothing but a few minutes of your time.

Below are the most common ways of dealing with VAT:

Invoice VAT Scheme

Exactly what is says on the tin.  You account for VAT based on the invoices raised and received.  This is normally of benefit to those that get paid in cash at the time of the sale but pay for purchases on credit as you are able to claim back VAT on invoices not paid at the end of a quarter aiding cashflow.

Cash VAT Scheme

VAT is accounted for on a cash basis when receipts and payments are made.  This will normally benefit the businesses where customers are slow payers as you will not have to hand over the VAT on sales until invoices have been settled.  This is also particularly relevant if you do not buy on credit and pay for goods immediately.  Normally better suited to new businesses who cannot get credit terms to start of with or pure cash businesses.  This scheme is available for sales turnover up to £1.35million in the next tax year and you can remain on the scheme until your turnover exceeds £1.6million.

For a full list of the pros and cons of Cash Accounting Scheme follow this link to HMRC.

Flat Rate Scheme

Probably the simplest form of VAT accounting.  You do not claim VAT on expenses but pay over a Flat Rate % of your sales turnover each return.  The anticipated level of purchases you would reclaim is taken into account by HMRC when calculating the % of your sales turnover and is set by industry.  VAT can be reclaimed on capital assets in excess of £2,000.  If you register for the Flat Rate Scheme in your first year you will also receive a 1% discount on the usual % for your industry.  Your VAT taxable turnover needs to be below £150,000 to join this scheme and you can remain in the scheme until turnover exceeds £230,000.

For a full list of the pros and cons of the Flat Rate Scheme follow this link to HMRC.

Schemes can also be combined with annual accounting so you make payments on account throughout the year and then submit just one VAT a year.  The biggest draw back of this of course is that you will normally only keep you bookkeeping up together for your VAT return – take this away and will you keep on top of your bookkeeping!!

For a full list of the pros and cons of the Annual Accounting Scheme follow this link to HMRC.

There are many other schemes available for particular sectors including the following:

VAT Schemes for Retailers

VAT Margin Schemes

Tour Operators Margin Scheme

These are the main schemes but there are many others available for specific industries such as catering.  If you are unsure as to what is available seek advice as you could be losing £000’s a year if you are on the wrong scheme.

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