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Guide to the Flat Rate VAT Scheme



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What's in the guide?

  • About the Flat Rate VAT Scheme
  • Case Studies
  • What is the correct flat rate for my business?
  • HMRC guidance on Flat Rate Scheme

Flat Rate VAT Scheme

This guide will explain what Flat Rate VAT is, how to work out the correct flat rate for your business and details the recent changes made to Flat Rate Vat by HMRC and how these may impact you.

  • Explains what the Flat Rate VAT scheme is
  • Details what the Flat Rate VAT expenses are
  • How Flat Rate VAT is calculated
  • The changes to the Flat Rate VAT scheme from 1st April 2017
  • What the options are if you meet the limited cost trader criteria
  • What constitutes a proper VAT invoice?
  • What vatable expenses can be claimed
  • Examples of Flat Rate VAT

What is Flat Rate VAT?

The Flat Rate for VAT Scheme was introduced by the Government to simplify the VAT rules for small businesses. If you have reasonable grounds to believe the value of your company’s taxable supplies in the next 12 months will be less than £150,000 (exclusive of VAT), your company is eligible to account for VAT using the flat rate scheme.

All invoices under the flat rate scheme continue to be raised with VAT charged at the appropriate rate, but the way in which a business accounts for VAT to HMRC changes. Instead of working out your output against your input VAT on a quarterly return, you select, from a list published by HMRC, a percentage based upon the category of business into which your company’s activity falls. This percentage is then applied to the company’s VAT inclusive turnover. This value is what the company accounts for to HMRC in each VAT quarter.

Your company invoices and receives VAT at the standard rate but pays VAT calculated at its flat rate percentage to HMRC. A company in its first year of VAT registration is allowed an additional 1% reduction on its percentage rate lasting for one year from the VAT effective date.