It may be possible for your business to use the flat rate scheme for VAT and to calculate your VAT as a percentage of your total VAT-inclusive turnover. The actual percentage you use depends on your type of business.
Even though you still need to show a VAT amount on each sales’ invoice, you don’t have to record in your accounting records the VAT that you charge on every sale and purchase, as you do with standard VAT accounting. This means you spend less time on the books and more time on your business.
Although you cannot reclaim VAT on purchases as an element of input VAT is taken into account in calculating the flat rate percentage, it is possible to claim back input VAT on certain capital asset purchases with a VAT-inclusive price of £2,000 or more.
The good news is that, once you join the flat rate scheme, you can stay in it until your total business income is more than £230,000. The flat rate scheme, however, is not suitable for every business.
The flat rate percentages are calculated in a way that takes into account zero-rated exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the flat rate scheme might not be right for your business if you buy mostly standard-rated items as you cannot generally reclaim any VAT on your purchases.
It could also be unsuitable if you regularly receive a VAT repayment under standard VAT accounting or if you make a lot of zero-rated or exempt sales.
4 August 2020
The Government has published further guidance in respect to compliance and the Coronavirus Job Retention Scheme (CJRS), with specific guidance for businesses who find they have…