UK Flat Rate VAT (Value Added Tax)

25 September 2023

Why should small UK businesses and contractors voluntarily register for VAT under the flat rate scheme?

Registering for UK flat rate VAT could improve your cashflow, save you money and is extremely easy to do.

VAT Inputs and Outputs

As a business, you deal with VAT.

  • On your receipts for things (goods and services) you buy, your Inputs.
  • And on your sales invoices when you sell to customers, your Outputs.

VAT registration

If your company makes over £85,000 in taxable turnover, you must register for VAT with HMRC (HM Revenue and Customs).

The current VAT registration limit is: £85,000 of Taxable Turnover. As of September 2023.

If your taxable turnover is under £85,000

You can voluntarily register for VAT if your taxable turnover is under the threshold. In some cases, the benefits of VAT registration may be quite advantageous for your company.

Different VAT rules

HMRC Has a range of different VAT schemes designed to cater for different sizes of business in different industries, these are well worth considering as they may save you money on your VAT bill or save time and effort in your calculations or both.

My turnover isn’t high enough to be VAT registered.

You must become VAT registered if your turnover hits £85,000. If your turnover is below the threshold, you can voluntarily register for VAT meaning you can take advantage of the VAT flat rate scheme.

How Much VAT will I keep?

Users of the Flat Rate VAT Scheme, charge a standard rate of 20% on their invoices but pay HMRC a lower rate. (there are variable rates, depending on the type of business). So, they pay less VAT than they charge and keep the difference.

Limited cost trader.

Most contractors fall into the category of “limited cost trader,” a technical term used by HMRC

A business that is deemed as a “limited cost trader,” should apply a rate of 16.5% to their VAT inclusive turnover to calculate their VAT liability, instead of applying the fixed percentage based on their trade or profession. So, they would keep 3.5% out of the 20% VAT charged, that is 3.5% of taxable turnover.

Read more about VAT here Value Added Tax – VAT the basics – Maple Accountants

Also see HMRC website VAT Flat Rate Scheme

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