HMRC have developed a variety of VAT schemes that can save the business owner time and money and enhance cash flow. Two of them are Cash Accounting and the Flat Rate VAT Scheme. In this blog post we explain what they are and how they could help your business. Which scheme you choose will depend on your particular business. We’re very happy to advise to help you make the right choice.
Making Tax Digital for VAT is soon to come into force and may affect changes in the schemes HMRC offer.
In standard accounting, the business must usually complete quarterly VAT returns. VAT payments as well as VAT refunds are also due quarterly. It is important to mention that in standard accounting VAT must be accounted for whether the invoice has been paid or not.
If you also need comprehensive accounts and tax compliance alongside VAT guidance, check out our financial accountants who specialise in small-business accounting.
Cash Accounting
If your estimated VAT taxable turnover is less than £1.35 million during the next tax year and your business is registered for VAT, you can use Cash Accounting. Once your business exceeds £1.6 million you can no longer use Cash Accounting.
The advantage of cash accounting is that you only pay VAT once your customer has paid your invoices. This can be a bonus for your cash-flow, especially if many of your customers pay slowly. If a customer never pays and the invoice becomes bad debt, you don’t have to pay the VAT on this invoice as long as you continue to use cash accounting. This, of course, also means that you cannot reclaim VAT until you have paid your suppliers.
If you leave the Cash Accounting Scheme for whatever reason, you will have to account for all outstanding VAT, including bad debts.
Flat Rate VAT Scheme
The Flat Rate VAT Scheme can be used by VAT registered businesses with a VAT taxable turnover of no more than £150,000. You cannot be part of the Cash Accounting Scheme and the Flat Rate VAT Scheme at the same time.
The Flat Rate Scheme simplifies your VAT accounting as you pay VAT as a fixed percentage of your turnover (incl. VAT) dependent on your type of business. You don’t need to record how much VAT you charge or the VAT you pay on every purchase in your accounts. However, you still need to show VAT amounts on your sales invoices.
You cannot claim VAT on purchases separately as this is already considered in your flat rate percentage – except for capital assets over £2,000.
The Flat Rate Scheme provides peace of mind and simplicity. It also provides the certainty that you always know the exact percentage of your turnover that is due to HMRC.
How Alba can help with VAT Schemes
If you would like to find out whether Cash Accounting or the Flat Rate Scheme might benefit your business, please get in touch. We are happy to answer any questions you may have about VAT schemes, such as exceptions, exemptions or special circumstances.
Alba can help you with the whole VAT process, from registration to completing and submitting VAT returns. We can advise if VAT registration is necessary for your business. Should de-registration be necessary, we can also undertake this for you.
You can call us on 01509 853779 or email us at admin@alba.uk.com .
For full support in selecting and managing VAT schemes, explore our expert VAT consultants and VAT filing services.