Lambert Chapman LLP’s Lisa Potter asks when did you last review your VAT scheme?

There are many VAT schemes that are open to businesses and some in particular provide advantages that are currently overlooked by many business owners.   Now is a good time to review your scheme as we are in an economy where savings in both time and money are important.   Two schemes in particular that should be considered more by businesses are the Annual Accounting Scheme and the Flat Rate Scheme.  

The Annual Accounting Scheme is available for businesses with a turnover up to £1.35m.   Basically one VAT return is prepared per year and payments are made throughout the year either monthly or quarterly based on previous results. 

Advantages:

• One VAT return to be prepared per year and this can be combined with your annual accounts preparation
• You get two months to complete the VAT return and pay any outstanding liabilities instead of one month
• Can be combined with the cash accounting scheme to ensure that no VAT suffered on delayed payment from customers
• Cashflow can be better managed as payments can be made monthly or quarterly and are set in advance
• As the end of year accounts will need to be prepared within two months of the year end this helps plan in advance for other tax charges that may be due such as corporation or personal taxes.   

Disadvantages

• Not suitable for businesses that receive regular refunds as only one per year will be received
• If turnover is decreasing VAT payments will be assessed on a higher figure and refund will be paid at the end of the year

The Flat Rate Scheme is available to businesses with a turnover of up £150k.  It is calculated by multiplying the gross income by a rate predetermined by HMRC on the industry sector, additional allowance is made for capital expenditure in excess of £2,000.    

Advantages:  

• Administration is significantly reduced as the calculation is based on turnover and capital expenditure exceeding £2,000 only, no need to extract VAT from other expenditure items
• For new registrations a 1% discount is applied in the first year
• Fewer rules to follow means that there is less chance of mistakes and therefore increased peace of mind
• Many businesses save money by utilising this scheme
• Can be combined with the Annual Accounting or Cash Accounting Scheme to aide cashflow management further

Disadvantages

• May not be suitable for businesses that receive regular refunds

This is a basic assessment of two schemes that are available to help businesses manage their VAT affairs easily and before any decision is made to change professional advice should be sought.

 

If you wish for us to review your current VAT scheme please feel free to contact us.

Date:28 June 2010

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