VAT increases to 20% with effect from the 4th January. The normal tax point rules…
There are a number of special VAT accounting schemes, which may have benefits for your business. Three of the most popular are explained below:
Annual Accounting for VAT
If your business turnover is less than £1.35m, you may apply to HMRCE not to fill in quarterly VAT returns, but instead to complete one return a year.
Under this scheme, you must pay a monthly direct debit equal to an estimate of the years VAT liability (usually calculated by reference to the previous 12 months). Any additional liability is then paid as a lump sum at the end of the year.
Under this scheme, businesses must remain self disciplined and ensure they keep a close eye on any VAT liability accruing throughout the year. The last thing you need is a large balance to pay that you weren’t expecting.
The schemes main advantage is that there is certainty over the monthly VAT payment so you can correctly budget for it within your cashflow.
Cash Accounting for VAT
If your turnover is less than £1.35m, you may choose to only pay VAT to HMRC once your customers have paid you, rather than when you raise invoices to your customers. however, similarly, you can only claim VAT back on your purchases once you have settled the bill with your supplier.
The main advantage of this scheme is that you don’t have to fund the VAT to HMRC out of sales proceeds as you only pay it across once you have received the VAT cash in.
Flat rate accounting for VAT
This scheme can be applied to businesses with turnovers less than £150,000 (excluding VAT).
Those who join the scheme do not need to record the VAT on their expenses. Instead, the business continues to charge its customers at the full VAT rate (currently 15%), and then pays a fixed percentage of the gross sales over to HMRC.
The fixed percentage is based on the industry that the business is involved in.
This scheme is particularly beneficial to businesses who have few VAT’able expenses or who are looking to simplify their VAT recording.
Of course, you shouldn’t enter into any of these schemes without full consideration of all the facts. Why not give us a call to see if any of these schemes would be beneficial to your business