Special VAT Schemes

Did you know that there is not just one fixed way to pay VAT? The government has created various schemes via which you can potentially save money on VAT. This week, we will have a look into what they involve and how you might be able to benefit.

Standard VAT Accounting

Most businesses submit returns and pay VAT on a quarterly basis. These returns record income and expenses, VAT owed you owe HMRC, VAT you are owed, and your VAT refund amount. Furthermore, there is now a requirement to keep records digitally and provide VAT return information to HMRC through MTD compatible software.

On your VAT return, there are 9 boxes, with fields recording VAT due on sales, VAT to claim back on purchases, net VAT payable/repayable to/from HMRC, total sales and purchases, total amount of goods sold/purchased to/from customers/suppliers in other EU Countries.

Flat Rate Scheme

With a Flat Rate VAT Scheme, you pay a lower fixed VAT rate from 4- to HMRC, usually dependent on your commercial sector. You still charge 20% VAT to your customers, however, and can save the difference as a result. Unfortunately, you cannot reclaim VAT on purchases, so is generally only useful to companies with low levels of purchases. If your purchases make up less than 2% of your turnover or £1,000 per year (a so-called ‘limited cost business’), the government essentially nullifies the benefit by putting a rate of 16.5% on.

Annual Accounting Scheme

While most businesses submit 4 tax returns per year, if you are on an Annual Accounting VAT scheme, you only pay once per year. You also make advance VAT payments on the basis of your previous return. At the end of the year, you either make a payment of the balance or can claim a repayment if you have overpaid.

As a result, there is less bureaucracy when you only have to submit a VAT return once per year, but you may end up with a large VAT bill at the end of the year if you do not plan carefully.

Cash Accounting Scheme

With this VAT scheme, you pay VAT on your sales when your customers pay you and reclaim the VAT on your purchases when you have paid your supplier. This means that you are not paying VAT for sales that have been invoiced but not paid which can help your cashflow.

This scheme is for VAT registered businesses with £1.35 million or less anticipated turnover over the next 12 months.

Other Schemes

Other VAT schemes exist, such as Margin Schemes where you pay VAT on the price you bought an item for, and Retail Schemes, which can make calculating your VAT simpler, and the Capital Goods Scheme if you reclaim VAT on capital items like expensive land, property or computer equipment.

If you would like any clarification or further information on how you could benefit from a different VAT scheme, please contact us.