Keep it simple
In order to simplify the VAT preparation process, HM Revenue & Customs do allow several alternative VAT accounting schemes for certain business types. If you are eligible, they could save you time and money.
A summary of the main alternative VAT accounting schemes are as follows :
Annual Accounting Scheme
If your estimated VAT taxable turnover for the following 12 months does not exceed £1.35million, you are not part of a group, you have not used the scheme within the last 12 months and you are up to date with your VAT payments then you will be eligible for this scheme.
Instead of completely quarterly VAT Returns, you can complete just one annual Return. Throughout the year, you make interim payments (either 9 monthly or 3 quarterly) based on your previous years actual VAT payments. When you submit your VAT Return, you will then make a balancing payment or receive a balancing refund.
The main benefit of this scheme is to aid with cash flow management.
Cash Accounting Scheme
If your estimated VAT taxable turnover for the following 12 months does not exceed £1.35million and you are up to date with your VAT Returns and payments then you can apply to use this VAT scheme.
Instead of entering items on your VAT Return at the date they have been invoiced, you only enter them at the date they have been paid or received by you. There are some exceptions to this, for example, assets bought on hire purchase or lease purchase must still be entered at the invoice date.
The main benefit is again a cash flow management one, as you only have to pay over output VAT when you have received the cash from the customer. If the customer never pays you, you will never pay over the output VAT.
Flat Rate Scheme
If your VAT taxable turnover is less than £150,000, you are not part of a group and you haven’t used the scheme within the last 24 months then you will be eligible to apply.
Instead of declaring output VAT on your taxable sales and claiming input VAT on your purchases, you can simply pay over a fixed percentage of your total VAT inclusive turnover each quarter. Each business type has a different HMRC approved percentage rate, (e.g. hotels would pay over 10.5% of their total income), but newly VAT registered businesses can reduce the percentage by 1% for the first 12 months. This percentage must be applied to your total sales, which would also include zero-rated and exempt sales. If a large proportion of your sales are zero-rated or exempt, i.e. you do not have to charge VAT on them under the standard VAT rules, then this scheme may not be beneficial for you.
You cannot claim back the input VAT on your purchases with the exception of capital asset purchases with a VAT-inclusive cost of £2,000 or more.
The main benefit of this scheme is to reduce the burden of the paperwork required to complete a standard VAT Return and for some businesses, it could significantly reduce the overall VAT payable to HM Revenue & Customs.
HMRC’s website contains a list of the approved Flat Rate Scheme percentage rates you would have to charge if you changed to the Flat Rate Scheme.
If you think you could benefit from using any of these schemes, or would like any further information, please do not hesitate to contact us and we will be happy to help.