VAT FLAT RATE SCHEME RATES

The amount of Value added tax (VAT) a business pays the HMRC or claims back is actually the difference between the VAT charged on the invoice for the goods and services sold to the customer and VAT charged on the inwards invoice received by the business on its purchases. By using a flat rate VAT scheme:

  • The business will pay a fixed rate of value added tax to HMRC
  • The business can keep the difference between the VAT charged to the customers and the amount paid to HMRC
Vat Flat Rate Scheme Calculator - Updated Percentages 2016

The business cannot reclaim the VAT charged on the purchases except for some capital assets purchased over £2,000. Under the flat rate VAT scheme, VAT charged on a single purchase of capital expenditure goods can be reclaimed if the amount of purchase including the VAT amount is £2,000 or more. These capital expenditure goods are dealt outside the flat rate scheme i.e. the amount corresponding to input tax can be claimed in box 4 of the tax return. On the other hand, if the purchase is more than one or the invoice value is under £2,000 including VAT or it is a service then in such a scenario VAT cannot be claimed and the input tax is taken into account as part of the flat rate percentage calculation.

For a business to be eligible to fall under this scheme, the VAT turnover of the business must be £150,000 or less (excluding VAT), and the business must apply to HMRC. To have a better understanding of the flat rate scheme it is advisable to contact DNS Accountants to suggest the business  if the flat rate scheme will be beneficial or not.

All businesses are not eligible for the flat rate VAT scheme. The pre-requisite for joining a flat rate scheme are:

  • The business must be a value added tax registered business
  • The business anticipates the value added tax turnover to be less than or equal to £150,000, excluding VAT, in the next 12 months. Here, the VAT turnover is referred to the total of all goods sold that are not VAT exempt

VAT flat rate scheme application

The business can either register online for VAT or fill in VAT600 FRS form and send it by post to the address mentioned on the form.

Conversely, a business cannot join the VAT flat rate scheme if:

  • In the past 12 months, the business left the VAT flat rate scheme
  • In the past 12 months, a tax offence (tax evasion) was committed
  • In the last 24 months, the business registered for VAT as a business division
  • The business is strongly allied with a different business
  • The business joined the capital goods value added tax scheme

The VAT flat rate scheme cannot be used with the cash accounting scheme. As an alternative, the scheme has its own method for computation of the turnover known as cash-based method.

Businesses can even opt for parting away from the flat rate VAT scheme. Business must part away if:

  • It is no longer eligible to be a part of the scheme
  • The business turnover in the last 12 months was greater than £230,000 (including VAT) and the business forecasts it to be more or same in the next 12 months
  • The business expects the total income in the subsequent 30 days to be more than £230,000 (including VAT)

To leave the VAT flat rate scheme, the business must write to HMRC and then the HMRC will confirm the leaving date of the business. Once the business has decided to exit the scheme it must wait for a minimum of 12 months to rejoin the scheme. The business must write to the below mentioned address:
HM Revenue and Customs
Imperial House, 77 Victoria Street
Grimsby, Lincolnshire DN31 1DB

VAT FLAT RATE SCHEME FOR SMALL BUSINESSES

Starting From – 1 April 2016

Standard rate of VAT

20%

Fraction of VAT

1/6

Reduced VAT rate

5%

Taxable Turnover Limits

Last 12 months or first 30 days – Registration

£83,000

Deregistration – subsequently 12 months under

£81,000

Limit for cash accounting scheme up to

£1,350,000

Limit for optional flat rate scheme up to

£150,000

Limit for annual accounting scheme  up to

£1,350,000

VAT FLAT RATE SCHEME CALCULATOR

A percentage of the flat rate turnover is the VAT flat rate. The flat VAT rate turnover is very different from the typical VAT turnover. Let’s assume the business bills a client for £1,000, + VAT @20% = £1,200 (Grand total). In this case, for an IT consultant the VAT flat rate will be 14.5%. Hence, the flat rate payment = £174 (14.5% of £1,200)

The flat VAT rate depends on the type of business. If there is a change in the rates the business must apply the new rate from the date of change. For first year VAT registered businesses, the VAT flat rate is reduced by 1%. The reduced rate is valid until the day before the business registration anniversary.

Type of business

Current VAT flat rate (%)

Accountancy or book-keeping

14.5

Architect, civil and structural engineer or surveyor

14.5

Computer and IT consultancy or data processing

14.5

Labour-only building or construction services*

14.5

Lawyer or legal services

14.5

Management consultancy

14.0

Real estate activity not listed elsewhere

14.0

Financial services

13.5

Film, radio, television or video production

13.0

Hairdressing or other beauty treatment services

13.0

Secretarial services

13.0

Catering services including restaurants and takeaways

12.5

Entertainment or journalism

12.5

Any other activity not listed elsewhere

12.0

Boarding or care of animals

12.0

Business services not listed elsewhere

12.0

Estate agency or property management services

12.0

Investigation or security

12.0

Laundry or dry-cleaning services

12.0

Advertising

11.0

Agricultural services

11.0

Photography

11.0

Publishing

11.0

Social work

11.0

Veterinary medicine

11.0

Computer repair services

10.5

Forestry or fishing

10.5

Hotel or accommodation

10.5

Manufacturing fabricated metal products

10.5

Travel agency

10.5

Mining or quarrying

10.0

Repairing personal or household goods

10.0

Transport or storage, including couriers, freight, removals and taxis

10.0

General building or construction services*

9.5

Hiring or renting goods

9.5

Library, archive, museum or other cultural activity

9.5

Manufacturing not listed elsewhere

9.5

Manufacturing food

9.0

Manufacturing yarn, textiles or clothing

9.0

Packaging

9.0

Printing

8.5

Repairing vehicles

8.5

Sport or recreation

8.5

Wholesaling not listed elsewhere

8.5

Membership organisation

8.0

Retailing pharmaceuticals, medical goods, cosmetics or toiletries

8.0

Wholesaling agricultural products

8.0

Retailing not listed elsewhere

7.5

Wholesaling food

7.5

Farming or agriculture not listed elsewhere

6.5

Pubs

6.5

Retailing vehicles or fuel

6.5

Post offices

5.0

Retailing food, confectionery, tobacco, newspapers or children’s clothing

4.0

*Construction services or Labour-only building services mean where the value of the materials supplied in a lesser amount of 10% of the turnover of the service

VAT FLAT RATE SCHEME THRESHOLD

The VAT taxable income is the total value of goods and services sold that aren’t exempt for VAT. The current threshold is £83,000 and it typically is revised on 1 April each year. Businesses must register with HMRC for VAT in a 12 month rolling period. To cross-check if the business has exceeded the threshold in any 12-month period, the business can add the total invoice value of all UK sales that aren’t exempt. This may include:

  • goods taken into service or leased to customers
  • company merchandise used for personal reasons
  • goods exchanged, or given as gifts
  • services received from businesses in countries that had to ‘reverse charge

The VAT registration form can be accessed by clicking here.

DIFFERENT VAT RATES

Different items have different implications.

Name

Current rate

Narrative

Standard

20%

The standard value added tax rate is the default tax rate. This rate is charged on almost all goods and services in the United Kingdom, if not acknowledged as being zero-rated or reduced

Reduced

5%

Items that fall under this category are children’s care seat, installation of energy-saving materials, sanitary hygiene products, and domestic fuel and power, etc.

Zero

0%

Items that fall under this category are public transport, books and newspapers, food (not restaurant meals or takeaways), children’s shoes and clothes etc.

Exempt

Not applicable

The law specifies that exempt items are free from VAT charges. Examples include fundraising, providing credit, insurance, education, membership, etc.

Outside the scope

Not applicable

No VAT is applicable of items that are totally outside of the United Kingdom’s VAT system

VAT FLAT RATE SCHEME ADVISOR – DNS ACCOUNTANTS

DNS Accountants is a trusted brand and has years of knowledge in the accounting and taxation domain. The firm has been helping businesses with VAT flat rate scheme and other VAT related queries. The team at DNS comprises of learned taxation professionals and ACA’s or Chartered Accountants (CA). The firm focuses a lot of customer service & believes in delivering unmatched client service. DNS Accountants offers:

  • services at a nominal rate
  • best-in-class accounting and tax planning services
  • VAT flat rate scheme guidance and taxation advice

Other services

DNS Accountants offers accounting, financial records management, taxes & self assessment services to owner-managed-businesses or self employed individuals. For business owners and freelancers / contractors, it is difficult to keep pace with the ever changing government regulations and rules and DNS takes responsibility of all the taxation and accounting needs of the business.



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