vat small business pointers

VAT - FLAT RATE SCHEME

 

INVOICE/CASH ACCOUNTING

FLAT RATE

REGISTRATION & RECORD KEEPING

INVOICE/CASH ACCOUNTING

FLAT RATE

REGISTRATION & RECORD KEEPING

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Usually, how much VAT a business pays or claims back from HM Revenue and Customs (HMRC) is the difference between the VAT they charge customers and pay on their purchases.

With the Flat Rate Scheme:

  • you pay a fixed rate of VAT over to HMRC
  • you keep the difference between what you charge your customers and pay over to HMRC
  • you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000

To join the scheme your VAT turnover must be less than £150,000 (excluding VAT) and you must apply to HMRC. You can join the scheme online (when you register for VAT) or by post.

You can leave the scheme at anytime, but you must leave if you’re no longer eligible to be in it. To leave, write to HMRC. You can’t use the scheme with the Cash Accounting Scheme.

You must leave the scheme if :

  • on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) - or you expect it to be in the next 12 months
  • you expect your total income in the next 30 days alone to be more than £230,000 (inc. VAT)

VAT flat rates - these depend on your business type. Please see below for detailed list of business types and rates. In your first year as a VAT-registered business the rate is reduced by 1%.

 

Please also refer to the following:

 

Work out your flat rate

The VAT flat rate you use usually depends on your business type. You may pay a different rate if you only spend a small amount on goods.

 

HMRC says that a limited cost trader is a business that buys only a few goods. More specifically, a limited cost trader's spend on goods, including VAT, in a quarter is:

  • less than 2% of its VAT-inclusive sales for that quarter, or
  • more than 2% of its VAT-inclusive sales for that quarter, but less than £250

This means you pay a higher rate of 16.5%. You can calculate if you need to pay the higher rate and work out which goods count as costs.

 

This figure should exclude the cost of the following items:

Examples of supplies that are not relevant goods. (Relevant goods are defined as goods that are used exclusively for the purposes of your business)

This is not an exhaustive list:

  • accountancy fees, these are services
  • advertising costs, these are services
  • an item leased or hired to your business, this counts as services, as ownership will never transfer to your business
  • goods not used exclusively for the purposes of your business, for example electricity to supply a home and an office located in the home
  • food and drink for you or your staff, these are excluded goods
  • fuel for a car this is excluded unless operating in the transport sector using your own, or a leased vehicle
  • electronic devices, such as a laptop or mobile phone for use by the business, this is excluded as it is capital expenditure, see paragraph 15.1
  • anything provided electronically, for example, a downloaded magazine, these are services
  • rent, this is a service
  • software you download, this is a service
  • software designed specifically for you (bespoke software), this is a service even if it is not supplied electronically
  • goods which are bought solely to meet the test, as these would not be used exclusively for the purposes of your business, for example, if the quantity of goods being bought cannot reasonably be used by the business and are simply ‘stockpiled’ or thrown away, even if the business may normally use those items is smaller quantities such as office materials
  • stamps and other postage costs, these are payments for services
  • capital expenditure goods of any value

 

Examples of relevant goods - This is not an exhaustive list:

  • stationery and other office supplies to be used exclusively for the business
  • gas and electricity used exclusively for your business
  • fuel for a taxi owned by a taxi firm
  • stock for a shop
  • cleaning products to be used exclusively for the business
  • hair products to use to provide hairdressing services
  • standard software, provided on a disk
  • food to be used in meals for customers
  • goods provided by a subcontractor and itemised separately
  • goods brought into the UK if they are not otherwise excluded
  • goods bought without VAT being charged, if they are not otherwise excluded

 

If you are not a limited cost business, you use your business type to work out your flat rate.

Flat rates for types of business

  • Accountancy or book-keeping 14.5%
  • Advertising 11%
  • Agricultural services 11%
  • Any other activity not listed elsewhere 12%
  • Architect, civil and structural engineer or surveyor 14.5%
  • Boarding or care of animals 12%
  • Business services not listed elsewhere 12%
  • Catering services incl restaurants and takeaways before 15 July 2020 12.5%
  • Catering services incl restaurants & takeaways from 15 Jul 2020 to 30 Sep 2021 4.5%
  • Catering services incl restaurants & takeaways from 1 Oct 2021 to 31 Mar 2022 8.5%
  • Computer and IT consultancy or data processing 14.5%
  • Computer repair services 10.5%
  • Entertainment or journalism 12.5%
  • Estate agency or property management services 12%
  • Farming or agriculture not listed elsewhere 6.5%
  • Film, radio, television or video production 13%
  • Financial services 13.5%
  • Forestry or fishing 10.5%
  • General building or construction services 9.5%
  • Hairdressing or other beauty treatment services 13%
  • Hiring or renting goods 9.5%
  • Hotel or accommodation before 15 July 2020 10.5%
  • Hotel or accommodation from 15 July 2020 to 30 September 2021 0%
  • Hotel or accommodation from 1 October 2021 to 31 March 2022 5.5%
  • Investigation or security 12%
  • Labour-only building or construction services* 14.5%
  • Laundry or dry-cleaning services 12%
  • Lawyer or legal services 14.5%
  • Library, archive, museum or other cultural activity 9.5%
  • Management consultancy 14%
  • Manufacturing fabricated metal products 10.5%
  • Manufacturing food 9%
  • Manufacturing not listed elsewhere 9.5%
  • Manufacturing yarn, textiles or clothing 9%
  • Membership organisation 8%
  • Mining or quarrying 10%
  • Packaging 9%
  • Photography 11%
  • Post offices 5%
  • Printing 8.5%
  • Publishing 11%
  • Pubs before 15 July 2020 6.5%
  • Pubs from 15 July 2020 to 30 September 2021 1%
  • Pubs from 1 October 2021 to 31 March 2022 4%
  • Real estate activity not listed elsewhere 14%
  • Repairing personal or household goods 10%
  • Repairing vehicles 8.5%
  • Retailing food, confectionery, tobacco, newspapers or children’s clothing 4%
  • Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8%
  • Retailing not listed elsewhere 7.5%
  • Retailing vehicles or fuel 6.5%
  • Secretarial services 13%
  • Social work 11%
  • Sport or recreation 8.5%
  • Transport or storage, including couriers, freight, removals and taxis 10%
  • Travel agency 10.5%
  • Veterinary medicine 11%
  • Wholesaling agricultural products 8%
  • Wholesaling food 7.5%
  • Wholesaling not listed elsewhere 8.5%

 

What you pay

You calculate the tax you pay by multiplying your VAT flat rate by your ‘VAT inclusive turnover’.

 

Example

You bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.

 

You’re a photographer, so the VAT flat rate for your business is 11%.

 

Your flat rate payment will be 11% of £1,200, or £132.

 

 

■ VAT Flat Rate Scheme & Limited Cost Businesses ■

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