Maria Peloponisiou~ 5 min Reading time | 25. Jun 2019
What is a flat rate scheme? What is the notice all about? This is a question that many small business owners have asked themselves. Well to put it plain and simple, this notice elaborates how one can join in through an application and more importantly, how the flat rate scheme can be used.
Where can the scheme be used? Well, the notice contains the basics of value-added tax. Let us first consider some basics.
Flat Rate Scheme is a design needed to make your vending and procurement records simple. It also has an allowance for you to apply to your gross turnover a fixed flat rate statistic. What’s even better is that your fixed rate statistics are dependent on your businesses.
What Are the Benefits?
These are the main advantages of the procedure:
It aids in the simple keeping of records; therefore, it’s not necessary to have a detailed record of invoices and sales.
It assists one to manage their monetary flow
It highlights the fixed rate that is below the common rate.
How the Businesses Will Benefit?
Be cautious because not all businesses will gain from this procedure;
In a normal way, you might be able to calculate the VAT and issue the invoices once your customers have registered.
If the flat rates are of average, more VAT is paid on the procedure than on a normal accounting.
Who Can Apply for the Flat Rate Scheme?
This procedure is most suitable for a business which generates over 100,000 pounds a year even after the VAT being excluded. The Flat rate procedure has a more straightforward way of calculating the VAT required to pay the HMRC, therefore, making it unsuitable for repayments from the HMRC to be regularly received.
Is It Possible to Combine the Flat Rate Method With Other Methods?
Here are some of the other procedures that can be used with the Flat Rate Scheme:
Annual Accounting. This can be combined with the flat rate; hence, one can spend less time worrying about how much VAT they owe in one year, and submit VAT return in one year.
Cash Accounting. The Flat Rate Scheme has its money-based procedure which is the same as the Cash Accounting Procedure.
Retail procedures. The Flat Rate Scheme has its retail-based procedure which is close to regular retail methods.
Margin Procedure For Second Hand Goods. If you are to sell an essential portion of goods, the Flat Rate Scheme will be of a value that is limited to your business. The reason is that Flat Rate Scheme calculates the VAT of your total sale rather than what’s on the margin.
What is Required to Apply for the Flat Rate Scheme?
The Flat Rate Scheme is most suitable for small scale businesses. It is possible to apply with the following conditions at hand:
If you are registered for Value Added Tax.
If your taxable turnover in the coming year is 150000 pounds or less excluding the VAT.
If your business is not in association with another.
How Can the Taxable Turnover Be Calculated?
Leaving all the capital assets the following are needed to be included:
The values of your zero, common and reduced rate supplies.
The turnover acquired from the sale of second-hand goods outside the margin procedure.
Any investment sales that are covered by the VAT act.
How to Know My Future Turnover
This, in a reasonable manner, can be predicted only if you’ve ever been registered for VAT for at least 12 months. The turnover is declared on your returns but what you need to do is be cautious of the changes that can take place in your account.
First, you need to register for VAT, then apply for the procedure hence giving you the possibilities to predict your turnovers by looking at:
The flat rate which you choose for your business is dependent on the business environment you are in. The appropriate is the one that most closely describes what your business will have accomplished in the forthcoming year.
The following steps can offer you an excellent chance to select the most appropriate business sector:
Ensure that your business has not been mentioned in the composite.
Make sure that no sector has the name of your business mentioned.
Be cautious and know whether your business will be of limited cost.
The Rising of My Turnover Above My Forecast
In case your prediction turns out to be low, you will not be penalized. Provided there is reasonable proof to your predictions, hence making it sensible to have a record of statistics where you can calculate your future turnover.
If your prediction has no reasonable basis, you will be excluded from the procedure immediately by the HMRC or from the time your use started.
The Rising of the Turnover After Joining The Procedure
You will stop being eligible in the procedure usage once the total value of your income as the year ends, is at least 230,000 pounds. However, the HMRC can make an exception if you manage to attain the 191500, therefore, enabling your eligibility to remain in the procedure.
Who is Unsuitable to Join The Flat Rate Scheme?
These are the conditions that make one unsuitable to join the procedure
If you haven’t registered the VAT.
If you are using the second-hand margin procedure.
If the flat rate procedure is not being used in the 12 months before the new application’s date.
For capital items, if you are needed to use the Capital Goods Procedure.
To summarize all this, one thing that is important to take note is that the value of one’s VAT is mainly dependent on the business type that you undertake. Rates vary on the number of goods you spend your money on.
So are you now conversant with the flat rate scheme? Are there any aspects of this scheme that you need more guidance on? We’d like to hear from you, comment below! You can also check out HMRC’s VAT Notice 733 for further information.