Flat rate scheme

This scheme is designed to reduce the cost of complying with VAT obligations by simplifying the way small businesses calculate their VAT. It is available to businesses who expect their VAT exclusive turnover in the next 12 months to be no more than £150,000 in taxable supplies.

Taxable supplies are calculated by looking at the total of supplies at the positive and zero rates, excluding VAT and the value of any capital assets expected to be sold. Total business income includes taxable supplies and the value of exempt and other non-taxable income.

A business must leave the scheme arises when turnover increases to £230,000.

The flat rate scheme saves time by removing the need to calculate and record output tax and input tax in calculating the net VAT due to HM Revenue & Customs. The VAT in a period is calculated by applying the flat rate percentage to the tax inclusive turnover for the period. However, the flat rate rate scheme can cost extra VAT if you make supplies which are exempt from VAT as flat rate VAT will be payable on the value of all supplies made, including exempt supplies.

HM Revenue & Customs has published a table showing rates applicable to many business sectors. Some examples are:

Category of business carried on	Appropriate percentage
Retail of food, newspapers, confectionery	4
Retail of vehicles or fuel	6.5
Photography	11
Estate agency	12
Hairdressing	13
Legal services	14.5
Computer and IT consultancy	14.5
For all other flat rate scheme please refer to the Flat Rate Scheme - New Percentage Rates

The flat rate to be used depends on which trade sector most accurately reflects any particular business. If a business includes supplies in two or more sectors, the percentage to be used is that appropriate to the main business activity as measured by expected turnover in the year ahead.

If you are making supplies to other VAT registered businesses, you give them a VAT invoice charging VAT at the normal rate for the supply (not the flat rate percentage).

Most traders with qualifying turnover are eligible to join the scheme, but there are a number of exclusions designed to prevent abuse of the scheme as well as a few to avoid complex interaction with other schemes. The scheme is optional, but traders wishing to join should complete Form VAT 600 (FRS) (which can be printed off the HMRC website at www.hmrc.gov.uk).

Do contact us if you would like further help or advice on this subject.

Easy Accountancy

Easy Accountancy is the UK’s only national specialist accountancy firm for freelancers, sole traders and small businesses

If you’ve just started out as a freelancer or run a small business, you’ll definitely need a small accountant and there are plenty of options out there! However, most accountants will charge you every time you get in touch with them; for every phone call, email or meeting.

We don’t want our clients to be scared to contact us and potentially lose out on valuable tax saving advice. It's even more important when you first start out as you really need to set your business up in the best way possible. As a start up you’ll probably have loads of questions and will really appreciate the fact you can call your accountant as many times as you like without the fear of racking up large bills.

Our low cost, all-inclusive fixed-fee accountancy service includes unlimited access to your own accountant throughout the year, so you never need to worry about picking up the phone and then receiving a bill afterwards for the privilege, and covers all your business and personal tax affairs needs. All clients additionally receive:

Help to run your business in the most tax efficient way possible
Help so you can understand the taxes you need to pay
Advice on the best ways to manage your business
Updates and reminders so you'll never miss a deadline
Help to ensure you maximise your tax allowances
Provide proactive tax advice throughout the year

We’ve saved our clients up to half on their accountancy bills – if you’d like a quote, click on the quote me button to the right of this page. Alternatively, call us on 0500 234111 / 01442 275767 or email jessica@easyaccountancy.co.uk

We also have a money-back service guarantee - all of your telephone calls and emails will be answered on the same day, or we will refund your monthly fee (another first within the accountancy world).

To appoint us as your accountants, please fill in our Client Agreement Form online.

If you are a contractor working through a limited company then visit SJD Accountancy (our sister company) who specialise in providing tax advice and accountancy services for Limited Company contractors. You can also keep up to date by following the SJD Accountancy Twitter

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