Joining the Flat Rate Scheme for VAT

You can apply at the time you register your company for VAT, or any time later. If you apply near the time of your VAT registration, you can start using the scheme from the date you are registered for VAT.

From 1st April 2019, if you are VAT registered, with turnover in excess of £85,000, you are obliged to keep your records digitally through ‘MTD functional compatible software’. 

Keep a copy of your application with a note of the office you send it to. HMRC will notify you in writing if your application is successful informing you of the date you can start to use the scheme. This is normally the start of the VAT period following receipt of your application.

Certain companies are not eligible to join the flat rate scheme; if they are eligible to join a VAT group (incorporated businesses which are linked to other incorporated businesses by common control or ownership), are an associate of another company, have been convicted of an offence in relation to VAT or in a VAT repayment position.

If a proportion of your supplies are exempt, therefore zero rated, it may not be beneficial to adopt the scheme.

Leaving the Flat Rate Scheme for VAT

You must leave the scheme if you’re no longer eligible to be in it i.e. 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 (including VAT.

Once you leave the scheme you cannot rejoin it until twelve months have elapsed.

Considering the Flat Rate Scheme for VAT

There are two main benefits in adopting the scheme; time saved recording quarterly VAT on sales and purchases with the removal of any stress that may bring and; better cash-flow management as you can easily calculate in advance how much VAT you owe on takings.

The saving that arises is not simply the difference between the Flat Rate and standard rate VAT applied to VAT exclusive income. The Flat Rate is applied to VAT inclusive income. By entering the scheme your company loses its ability to reclaim VAT on the majority of goods or services used in the course or furtherance of your business.

Before adopting the Flat Rate for VAT Scheme you must consider the VAT lost on expenses and purchases against the benefit of calculating VAT using the relevant Flat Rate scheme percentage. Your company may still recover VAT incurred on capital assets it purchases with a VAT inclusive value of more than £2,000 (with the exception of company cars).

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