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  •  

    VAT - Alternative Schemes

  • Go to ...
  • annual accounting
  • cash accounting
  • flat rate scheme
  • other schemes
  •  


    Annual Accounting

    Eligibility

    1. When applying to join the scheme turnover must be less than £1,350,000.
    2. Once on the scheme turnover can rise to £1,600,000 before a business will have to transfer back to the standard accruals method.
    3. All new businesses can now join the annual accounting scheme immediately.
    4. Existing businesses must ensure that all payments to HMRC are up-to-date.

    Benefits

    1. Business only has to complete one annual VAT return.
    2. The business has 2 months to complete the return from the end of the 12 month period when any balance payment must also be made.
    3. The business has the option to pay either 9 monthly direct debits or 3 quarterly direct debits and a balancing payment.

    An example payment profile for a company commencing using Annual Accounting Scheme from 1 January 2017:-

    Month from Scheme Start Month Monthly Payments Quarterly Payments
    1 Jan-17    
    2 Feb-17    
    3 Mar-17    
    4 Apr-17 1st Pay  
    5 May-17 2nd Pay  
    6 Jun-17 3rd Pay 1st Pay
    7 Jul-17 4th Pay  
    8 Aug-17 5th Pay  
    9 Sep-17 6th Pay 2nd Pay
    10 Oct-17 7th Pay  
    11 Nov-17 8th Pay  
    12 Dec-17 9th Pay 3rd Pay
    13 Jan-18    
    14 Feb-18 Bal Pay Bal Pay

    For further information on the annual accounting basis read VAT notice 732.

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    Cash Accounting

    Eligibility

    1. When applying to join the scheme turnover must be less than £1,350,000.
    2. Once on the scheme there is a tolerance level up to a turnover of £1,600,000.
    3. All new businesses can now join the cash accounting scheme immediately.
    4. Existing businesses must ensure that all payments to HMRC are up-to-date.
    5. When a business transfers back to the accruals basis they have 6 months to bring their payments up-to-date.
    6. You can only transfer to a cash accounting scheme at the start of a tax period.

    Benefits

    1. Significant cash benefit to the business as you will only pay VAT to the revenue on sales you have paid for.

    For further information on the cash accounting basis read VAT notice 731.

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    Flat Rate Scheme

    Eligibility

    For a business to qualify for the Flat Rate Scheme it must meet both of the following criteria:-

    1. Taxable sales must be no more than £150,000 per year.
    2. Total income in the year must not exceed £230,000.

    Benefits

    1. Using the flat rate scheme is simple and easy to use. Each business type has a percentage rate applied to it for example the percentage for accountancy and bookkeeping business is 14.5%. You then multiply that percentage by your quarterly gross sales including VAT and that is how much VAT you pay to HMRC.
      Example. You invoice a client £1,000.00 plus VAT of £200.00, a total gross invoice of £1,200.00. The flat rate for the business is 14.5%. Your payment will be £1,200.00 x 14.5% = £174.00.
    2. You can also claim the VAT on capital assets over £2,000.
    3. The VAT flat rate you use depends on your business type and costs. You get a 1% discount if you're in your first year as VAT registered business.

    New rules from 1st April 2017

    1. You will be classed as a "limited cost business" if your goods cost less than either:
    2. This means you will pay a higher rate of 16.5%.
    3. If you aren't a limited cost business, continue to use your business type to work out your flat rate.
    4. When working out the amount spent on goods, it cannot include purchases of:

    For further information on the flat rate scheme read VAT Notice 733.

    Flat Rates
    Type of business Flat
    Rate
    1st Year Vat
    registered %
    Accountancy or bookkeeping 14.5% 13.5%
    Advertising 11.0% 10.0%
    Agricultural services 11.0% 10.0%
    Any other activity not listed elsewhere 12.0% 11.0%
    Architect, civil and structural engineer or surveyor 14.5% 13.5%
    Boarding or care of animals 12.0% 11.0%
    Business services not listed elsewhere 12.0% 11.0%
    Catering services including restaurants and takeaways 12.5% 11.5%
    Computer and IT consultancy or data processing 14.5% 13.5%
    Computer repair services 10.5% 9.5%
    Entertainment or journalism 12.5% 11.5%
    Estate agency or property management services 12.0% 11.0%
    Farming or agriculture not listed elsewhere 6.5% 5.5%
    Film, radio, television or video production 13.0% 12.0%
    Financial services 13.5% 12.5%
    Forestry or fishing 10.5% 9.5%
    General building or construction services 9.5% 8.5%
    Hairdressing or other beauty treatment services 13.0% 12.0%
    Hiring or renting goods 9.5% 8.5%
    Hotel or accommodation 10.5% 9.5%
    Investigation or security 12.0% 11.0%
    Labour-only building or construction services 14.5% 13.5%
    Laundry or dry-cleaning services 12.0% 11.0%
    Lawyer or legal services 14.5% 13.5%
    Library, archive, museum or other cultural activity 9.5% 8.5%
    Management consultancy 14.0% 13.0%
    Manufacturing fabricated metal products 10.5% 9.5%
    Manufacturing food 9.0% 8.0%
    Manufacturing not listed elsewhere 9.5% 8.5%
    Manufacturing yarn, textiles or clothing 9.0% 8.0%
    Membership organisation 8.0% 7.0%
    Mining or quarrying 10.0% 9.0%
    Packaging 9.0% 8.0%
    Photography 11.0% 10.0%
    Post offices 5.0% 4.0%
    Printing 8.5% 7.5%
    Publishing 11.0% 10.0%
    Pubs 6.5% 5.5%
    Real estate activity not listed elsewhere 14.0% 13.0%
    Repairing personal or household goods 10.0% 9.0%
    Repairing vehicles 8.5% 7.5%
    Retailing food, confectionery, tobacco, newspapers or children's clothing 4.0% 3.0%
    Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8.0% 7.0%
    Retailing not listed elsewhere 7.5% 6.5%
    Retailing vehicles or fuel 6.5% 5.5%
    Secretarial services 13.0% 12.0%
    Social work 11.0% 10.0%
    Sport or recreation 8.5% 7.5%
    Transport or storage, including couriers, freight, removals and taxis 10.0% 9.0%
    Travel agency 10.5% 9.5%
    Veterinary medicine 11.0% 10.0%
    Wholesaling agricultural products 8.0% 7.0%
    Wholesaling food 7.5% 6.5%
    Wholesaling not listed elsewhere 8.5% 7.5%

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    Other Schemes

    For further information on other alternative VAT schemes read the following VAT notices:-

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    Click Here to download the current tax year's abacus Tax Tables pdf booklet

    Click Here to download the previous tax year's abacus Tax Tables pdf booklet

     

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