The VAT flat rate scheme provides and alternative method of calculating VAT, whereas the annual accounting scheme provides a different way to report VAT. It is designed to help businesses reduce their admin by only filing one VAT return a year instead of four.
VAT is still paid in installments you can chose to either pay 9 monthly installments of 10% of the estimated total or quarterly payments due at the end of months 4, 7 and 10 based on 25% of the estimated total.
For the first year the installments are an estimate of your overall VAT liability. HMRC calculate this amount based on figures you give them when registering for the scheme. In following years, the amount is based on the previous years VAT return. There is then a final payment due 2 months after the VAT year has finished. This is also the deadline for filling the VAT return.
If at the end of the year you have overpaid VAT, you can claim a refund at this point as well.
WHAT ARE THE ADVANTAGES?
· Your cash flow is easier to manage, as you know how much you’ll pay out each month
· You get an extra month to complete your VAT return and pay any of the tax owed at the end of the year
· There is only one report to file a year so less deadlines to remember
AND THE DISADVANTAGES?
· You can end up paying much more VAT than you need to as the amount paid is based on estimated figures.
· Equally you can end up paying much too little and having a large bill at the end of the year.
· If you claim back VAT regularly you can only do this once a year and may wait a long time to reclaim your funds
CAN I JOIN?
To join you need to be VAT registered business with an estimated VAT turnover of under £1.35 million in the next 12 months.
You also can’t join if you’ve left in the last 12 months, you’re not up to date with your VAT returns and payments, or your part of a VAT group. You will also have to leave the scheme once your turnover reaches £1.6 millions