Flat Rate Scheme for VAT
The Flat Rate Scheme (FRS) allows you to pay a flat percentage of your turnover to HMRC for VAT and can save you money and time preparing the VAT returns.
If your VAT taxable turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total VAT-inclusive turnover. You would still invoice your customers the standard rate of VAT – 20% from 4th January 2011 – but you pay HMRC a reduced fixed percentage.
The fixed percentages vary by the business type and range from 4% to 14.5%, follow this link to HMRC’s website to rate applicable to your business http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm
The scheme is designed to reduce administration although it will only be attractive if it does not result in additional VAT liabilities. The only way to establish whether your business will benefit is to carry out a calculation and comparison of the normal rules and the flat rate rules.
All VAT registered businesses – it is a legal requirement to register for VAT if your turnover reaches £70,000 – will be required to change the standard rate charged to 20% for all sales made on or after 4th January 2011.
Careful planning is required to update systems, tills and shelf prices to effect the change and it is also an ideal time to review pricing and service levels. Your customers may see increased prices resulting from the VAT increase and perhaps inflation, but the impact may be mitigated if you are able to demonstrate an improved product or service.
Act now to plan for the VAT increase and if you would like assistance you can contact us now.
Founder, Piper Hulse Accountants
For information of readers: This material is published for the information only. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.