Which VAT accounting system should I choose for my business?

Which VAT accounting system should I choose for my business?

Any business with a turnover in excess of £79,000 will need to register for VAT purposes, businesses under this threshold can also register for VAT on a voluntary basis. There are three VAT accounting systems in place, so choosing the best system to suit your needs can make a big difference to procedures you need to put in place.

The three available VAT accounting systems are:


This system allows you to claim back VAT on all applicable purchases, alongside a requirement to charge VAT for all goods or services you supply. You will need to make a VAT return each quarter and this will consist of all output taxes levied, which is the total of all the VAT charged throughout the period, and input taxes, which is the total of all the VAT levied by suppliers throughout the period.

Cash accounting

The cash accounting VAT scheme is limited to businesses with turnover less than £1.35mn and can be useful for cash flow purposes. You will need to make a quarterly return of VAT but only need to make returns for actual VAT you have paid or received during the quarter. The standard scheme needs to cover all goods and services which have been invoiced and can be a significant drain on cash flow at times when big invoices are outstanding for payment. With cash accounting, you can only claim back VAT for products and services that you have already paid for.

Flat rate VAT scheme

This is a simpler scheme to administer and is ideally suited to small businesses with a low requirement for the purchase of VATable goods. With this scheme, you cannot claim back input tax, or VAT paid for supplies or services, but you don’t need to account for the full amount of VAT you charge for your goods or services. You would still charge VAT at the full rate of 20% but only need pay between 13.5% to 14.5% to HMRC. This scheme can be a good income booster for traders such as freelancers and consultants and is quite simple to administer.

SQK Accountancy provide VAT advice and VAT accounting assistance to businesses, alongside cloud accountancy and payroll services. Contact us to discuss the many ways we can take the headache out of your regular accounting procedures.


No Comments

Sorry, the comment form is closed at this time.