When a business pays tax on its purchase and charges tax to its customers, the difference of this amount of tax that such business can claim back or pay to UK’s tax, payments, and customs authority (HM Revenue) and Customs (HMRC), is known as VAT flat rate scheme. This scheme simplifies the records of your sale and purchase.
For joining the Flat Value-added Rate Scheme, you have to apply to HMRC, and your turnover should be £ 150,000.
Eligibility for VAT Flat Rate Scheme
You can join the scheme in two cases.
- Your business should be registered in VAT.
- If you expect your turnover to be £ 150,000 or less within the next 12 months, excluding VAT.
You will not be eligible for the VAT Flat Rate Scheme if,
- You left the scheme in the last 12 months.
- VAT evasion in the last 12 months. In the last 12 months.
- You registered for VAT in the business division.
- Your business is associated with another business.
- If you are in a VAT group or eligible to join an existing VAT group, you cannot join the scheme.
- Users of cash accounting, retail schemes, and margin or capital goods VAT scheme.
Leaving VAT Flat Rate Scheme
You have to leave the Scheme if,
- You are no longer eligible for the scheme.
- Your turnover for the previous year was more than £230,000 (including VAT).
- You expect your turnover will be more than £230,000 (including VAT) in the next 12 months.
- You expect your total income in the next 30 days more than £230,000 (including VAT).
Under the VAT Flat Rate scheme regulations,
- You pay a fixed amount of VAT depending on your business type. Under the Flat Value-added Tax Rate Scheme regulations, you pay a fixed amount of VAT depending on your business type. If you newly registered your business for VAT, you can get a 1% discount in the first year.
- If you charge a different amount to customers and pay the other amount to HMRC, you can keep the difference.
- You cannot reclaim the VAT on your purchases.
There are certain cases where you can reclaim your VAT charge on a single purchase of land, building, equipment, fixtures, or other capital expenditure goods. The amount of a single purchase should be at least £ 2000, including VAT. You cannot claim value-added tax (VAT) if you make more than 1 purchase, or the amount of purchase is under £ 2000, or services.
Single Purchase Capital Goods
You can easily understand whether you fall under the single purchase of a capital asset or not with the following example.
If you buy a computer package like a laptop, computer, camera, scanner, photocopier, and so on in a single purchase costing £ 2000 or more, including VAT. Then you can claim the input tax. If you make a purchase from different suppliers at different times, then each purchase should be £ 2000 or more, including VAT. Otherwise, you cannot qualify for a reclaim of VAT.
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|Types of Business||VAT Rates (%) Before 15 July 2020 & After 12 January 2021||VAT Rates (%) Between 15 July 2020 & 12 January 2021|
|Catering Services Including Restaurants and Takeaways||12.5||4.5|
|Hotel or Accommodation||10.5||0|
Limited Cost Business under the VAT Flat Rate Scheme
You will be classified as “Limited Cost Business” if your goods’ cost is less than 2% of your turnover or if the goods cost more than 2%, then £1,000 a year. You may have to pay a high flat rate of 16.5%.
Frequently Asked Questions (FAQs)
Can I claim VAT on flat rate scheme?
You cannot claim VAT in this Scheme unless if you purchase capital goods amount £ 2000 or more (including VAT) from a single buyer in a single purchase.
Is the flat rate VAT scheme worth it?
The Flat Rate Scheme is a straightforward process, and filing of return is easier than standard rate return. You don’t have to reconcile your receipts, and if you are a new business, you can get an extra 1% discount in the first year of business. The only drawback is that you cannot claim VAT in this scheme.
How do I leave the VAT flat rate scheme?
You can leave the Scheme anytime. Write to HMRC about your leaving, and they will confirm