VAT or Value Added Tax is the one thing in the accounting process that most people fear. With so Many VAT schemes, from CashAccounting, Invoicing Accounting, Flat Rate Scheme or Annual Accounting, we can help you assess the most beneficial scheme for your business.
VAT also known as Goods and Service Tax in some other countries, Is a tax collectable by businesses on behalf of HMRC at the rate of 20% (which is reviewed at every budget) for businesses with an annual turnover of £85,000 . This threshold is also reviewed at every budget. The VAT incurred (known as input tax) on goods and services that have been purchased by the business can be deducted when calculating how much VAT is due to HMRC.
What are the different schemes?
The different schemes were introduced to help small businesses. Cash accounting is where VAT due to be paid or reclaimed is based on payments and receipts. To be eligible for this scheme, your company’s turnover must be less than £1.35 million. There are other eligibility conditions which must be met, which we can discuss in detail with you.
Annual Accounting is ideal for businesses with an eligibility turnover of £1.35 million a year. One VAT return is submitted on annual basis instead of four times a year. It is not ideal for businesses that reclaim VAT on a regular basis and it is not ideal for those businesses that need to budget for VAT payments on a quarterly basis.
The Flat Rate Scheme is perfect for companies with an annual turnover of less than £150,000 per year and buy goods and services that do not attract input tax. A fixed rate (which is determined by the nature of trade of the VAT registered business) is applied when calculating the VAT due. Again other eligibility criteria must be met
Invoice Accounting is a system for other VAT registered business where they do not meet the criteria to join any of the above schemes. It may also be beneficial to use in some cases for companies that do meet the above criteria but may be in a position where they are partially exempted or receive payments in instantly but pay their own suppliers on credit account. VAT is due on sales invoices and reclaimed on purchase invoices on issue, whether your company has been paid or not, or made payment or not.
Which Scheme is right for you?
If you have not yet registered for VAT we can look at your financial position and how your company trades to make assessments to which scheme would be most beneficial to you and your company. If you are already registered, we can assess your position to make sure that you are on the correct scheme that continues to benefit you.
At 1 For All Accounting, the Angels can help you:
VAT is a complex tax that can attract inspections from HMRC. Upon a recent inspection of a client, HMRC commended us on our VAT tests for partially exempted VAT registered companies and asked permission for HMRC to use our working papers formulae for future templates to help other small businesses.
Don’t get in hot water by incorrectly preparing you VAT, call us today!