Showing posts with label frs. Show all posts
Showing posts with label frs. Show all posts

Sunday, June 5, 2011

Is the VAT Flat Rate Scheme worth it?

In the UK there are basically 3 ways you can collect and pay VAT. The standard scheme that everyone know about: you collect VAT on your sales and recover VAT on your purchases then pay the difference to HMRC every 3 months. The principle is quite simple (practice is lot more complex however!).

There is a second method which is a slight variation on the first one: it's available to businesses with an expected turnover of less than £1.35m and it's called the cash accounting scheme. Using standard VAT accounting, you pay VAT on your sales whether or not your customer has paid you. Using cash accounting, you do not need to pay VAT until your customer has paid you. It can improve cash-flows for businesses with less favourable terms for suppliers than for clients.

Then there is the flat rate scheme. It was designed to help the small business but you need to understand all the implications before you jump. It's only available to businesses with a turnover of £150k or less and once you have joined you can only stay in the scheme for as long as your turnover remains under £230k.