If your annual turnover exceeds the current VAT threshold then you will need to register with HMRC for VAT and complete and submit VAT returns to HMRC, usually quarterly.
Flat rate VAT?
VAT Returns represent a major administrative burden for many business owners, but for small businesses with an annual turnover of £150,000 or less (current figures, may be subject to change) the Flat Rate Scheme may be the best option.
Under the Flat Rate Scheme a business pays a fixed, flat-rate percentage of gross turnover to determine how much VAT it must pay to HMRC quarterly.
Although a small business using the scheme will still charge VAT as normal on all of the ‘supplies’ it makes, and issue VAT receipts to customers in the usual way, the quarterly VAT return should be more straightforward because it only requires the business to calculate its total sales and then apply a flat rate of VAT to the VAT-inclusive value.
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Advantages and possible disadvantages of the flat rate VAT Scheme
Although a small business using the scheme will still charge VAT as normal on all of the ‘supplies’ it makes, and issue VAT receipts to customers in the usual way, the quarterly VAT return should be more straightforward because it only requires the business to calculate its total sales and then apply a flat rate of VAT to the VAT-inclusive value.
Another advantage of the flat rate scheme, beyond simplifying the process, for non-flat rate vat returns, of recording VAT inputs (money received) and outputs (transactions where vat has been paid for supplies or services bought) is that the Flat Rate Scheme can also enable some small businesses to increase revenue by paying a lower rate of VAT to HMRC than the rate, currently 20%, to be added to charges to their own customers.
For example, with a restaurant, VAT will be added of 20% to the customer but under the flat rate scheme the restaurant would pay a flat rate which is currently 12.5% for VAT. The restaurant example demonstrates that this may in fact not be such a great advantage. With flat rate VAT, no outputs can be set off against inputs. The restaurant will but lots of products where VAT has been added and cannot set these off. Consequently, with a business that buys a lot of goods or services, the flat rate may in fact not be advantageous.
Online VAT and accounts package
If your VAT Returns are relatively simplistic then in certain circumstances it may make sense for you to complete them yourself. We can advise you on whether you should feel comfortable filing your returns on your own.
If you use a bookkeeping software package then more than likely it will have the ability to submit your VAT returns electronically based upon the bookkeeping you have completed.
However, VAT can be a very complex area and sometimes it can be worth outsourcing the completion of your VAT returns to professionals. This is where we come in!
VAT advice and services
Please do get in touch if your business needs help with VAT or an efficient and VAT service to go along with your accounts. If you have a VAT inspection or some kind of issue or dispute, we can also help with that.