We have been working with a new business which will soon need to become VAT registered. and we have been considering the most appropriate VAT scheme to use.
There is a VAT scheme available to businesses with turnover of less than £150,000 called the Flat Rate Scheme which may reduce the amount of VAT you have to pay. This scheme simplifies accounting for VAT as the payment you make is calculated as percentage of your sales including VAT.
Under this scheme you do not reclaim any VAT on purchases, hence the simplified accounting. The percentage you can use will depend on the type of business you are as it varies from 4% at its lowest to 14.5% at its highest.
Businesses need to apply to HMRC to use this scheme and new businesses using this scheme from initial registration will receive 1% reduction on the percentage agreed by HMRC for the first year of VAT registration.
This type of scheme is an advantage for many businesses who have very little VAT to recover on purchases and can be used until turnover reaches £230,000 per annum, although you can choose to leave the scheme at any time.