Flat rate scheme

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The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

With the Flat Rate Scheme:

  • you pay a to fixed flat rate HMRC
  • you keep the difference between what you charge your customers and pay to HMRC
  • you can’t reclaim the VAT on your purchases – except for certain capital assets over £2000.

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

Exceptions

You can’t use the scheme if:

  • you left the scheme in the last 12 months
  • you committed a VAT offence in the last 12 months, eg VAT evasion
  • you joined (or were eligible to join) a VAT group in the last 24 months
  • you registered for VAT as a business division in the last 24 months
  • your business is closely associated with another businesss
  • you’ve joined a margin or capital goods VAT scheme

You can’t use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash-based methodd for calculating the turnover.

Leaving the scheme

You must leave the scheme if:

  • you’re no longer eligible to be in it
  • on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
  • you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)

If you are thinking of using the VAT flat rate scheme please contact us below for a FREE assesment or send us an email.