Following on from the first instalment in our series on VAT (https://www.invicta-accounting.com/blog-post/vat-value-added-tax/) we now discuss some of the VAT schemes that are available.
Annual Accounting Scheme
The first of our VAT schemes is the Annual Accounting Scheme which we briefly alluded to in our first instalment.
What do people think of when they hear ‘Value Added Tax’, they think of quarterly returns to HMRC and constant paperwork and the ‘VAT man’ on your back constantly.
This scheme is meant to alleviate the paperwork and administration aspect, to an extent. Obviously, the record keeping aspect does not change its just the filing deadlines change.
To be eligible for this scheme you must have taxable turnover of £1.35million or less per annum.
When you first register you will have to estimate your VAT for the year to make regular instalment payments, just so you are not left with a large bill at the year end. However, if this is not your first year then your instalments will be based on your prior year.
The instalment payments can be made either monthly or quarterly. Monthly payments are due at the end of months 4 -12 and are 10% of your previous years bill. Quarterly payments are due at the end of month 4, 7, 10 and should be 25% of your previous year bill.
Then you submit your final VAT return 2 months after your VAT year end and make a balancing payment which is the difference between what VAT is due and the instalment payments that you have made.
This is something Invicta have experience in, we can help you choose the scheme that is best for you and your business.
VAT Flat Rate Scheme
This one of the VAT schemes is quite simple to understand although it often takes some time to adjust to as it doesn’t operate the same as conventional VAT.
So normally if you are registered for VAT you charge VAT at 20% on all your sales and claim back any VAT on purchases as appropriate and pay/reclaim the difference from HMRC.
However, the flat rate scheme changes this logic. In a nutshell, you pay VAT at a special rate as agreed by HMRC on all your sales BUT you cannot reclaim any VAT on purchases. See HMRC’s website for guidance on the applicable ‘flat rate’ for your business https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
The eligibility criteria for the flat rate scheme is turnover of £150,000 or less per annum.
The flat rate scheme normally follows the same quarterly submission dates as with standard VAT registration.
HOWEVER, you can register to use both the flat rate VAT scheme and the Annual Accounting Scheme together.
This would vastly reduce your paperwork in comparison with standard VAT.
You should beware that it is not always best for your business to use the flat rate scheme. If you have minimal expenses, then it can prove to be worthwhile.
If your costs are quite high, it will not prove to be as useful as you cannot claim any of the VAT on the purchases.
How can Invicta help?
Invicta has systems in place to compute your VAT and make submissions on your behalf whether it is ‘normal’ VAT or even if you wish to apply any of the VAT schemes detailed above we can handle it for you!
We act on your behalf, removing the administrative burden associated with VAT return preparations and submissions, ensuring that your returns are submitted on time to avoid any potential penalties and deal with any related correspondence.
Call Invicta Accounting on 01624 672358 or email us at firstname.lastname@example.org to discuss your requirement. Visit our website for more information on our other blog articles and keep your eyes peeled for the next instalment in our VAT series https://www.invicta-accounting.com/blog-post/