Choosing the right VAT scheme for your business

tax calculations

Choosing the right VAT scheme for your business

Planning for VAT can be difficult for any business.

This is a complex tax which is currently being revolutionised due to the UK government’s Making Tax Digital initiative. It’s quite possible for business organisations to under or overpays VAT, and this can cause problems.

Any startup anticipating turnover above the current VAT threshold of £85,000 will need to register for the most appropriate VAT scheme. These include:

The flat rate scheme

The flat rate scheme was designed for small businesses and means organisations can charge VAT at the standard rate but pay HMRC a lower rate. It is only available to businesses with a turnover of less than £150,000.

One advantage of this scheme is that companies don’t need to maintain records of VAT charged for every sale and purchase. Instead, VAT is calculated as a percentage of the total VAT-inclusive turnover.

Cash accounting

With this scheme, organisations with a turnover for the year of less than £1.35mn can register and will only need to pay VAT to HMRC at the time customers pay their bills. In a similar way, VAT can be reclaimed after suppliers have been paid. This can be extremely effective for cash-flow purposes, so is a great solution for startups and smaller organisations.

Annual accounting

This VAT scheme can cut out all the paperwork associated with VAT and will also help improve business cash flow. With annual accounting, organisations can make a total of nine monthly or three quarterly payments throughout the year. These are likely to be much less than the payments made using standard VAT accounting methods. At the year-end, one single VAT return is made, which is likely to be a balancing payment or a balancing refund. This scheme can be used in conjunction with flat rate or cash accounting, so it can make a big difference to your business accounts for the year.

SQK Accountancy offers specialist VAT advice, cloud accountancy and standard accounting services to businesses of any size. Get in touch to find out all the ways we can take the stress out of your business finances and save you money.

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