If your business turns over less than £150,000 and is VAT registered or is looking to register for VAT then this scheme may benefit you.
The standard way of accounting for VAT is to pay to HMRC VAT on sales and deduct input VAT on purchases.
To simplify the calculation of this VAT HMRC offer the Flat-Rate VAT scheme to small businesses. Customers are invoiced in the same way but do not need to calculate the Input VAT. Instead they pay over to HMRC a pre-agreed % of the gross amount received/invoiced. The % is taken from a list provided by HMRC and which is specific to your industry sector.
If your business does not incur much Input VAT then it may benefit from this scheme, so the business can actually make a profit from the scheme.
Additionally in the first year of VAT registration you can claim an additional 1% deduction from the agreed %.
Care needs to be taken to ensure you use the correct rate for your industry as many businesses could fall into more than one category
The current list of flat-rate scheme % can be found on the HMRC web site – http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#4 but if you are in any doubt about whether the scheme is suitable for you, or if you qualify please contact your local Burgis & Bullock office.