For businesses that are VAT registered or planning to be in the future, there is a simple way to save both time and money on the preparation of your VAT returns. This is the flat-rate scheme for VAT, which is available to businesses with an annual turnover of £150,000 or less. The flat-rate scheme applies a percentage given to the business by HMRC to the gross outputs. The value of the turnover multiplied by this percentage is the amount of VAT that must be paid to HMRC by the business. This scheme means that the input VAT does not need to be calculated, saving the business time.
The percentage relevant to the business will vary dependant on the industry in which it operates, and currently varies from 4-14%. Businesses in their first year of VAT registration are entitled to a 1% discount on their flat-rate percentage. This scheme may save businesses that normally pay HMRC VAT rather than receive VAT refunds, as the flat-rate percentage is lower than the usual 20% rate of VAT. A useful idea is to calculate a quick comparison of the VAT paid under the current scheme and the VAT that would have been payable under the flat-rate scheme, in order to confirm whether money could have been saved. In addition, input VAT on large asset purchases may be reclaimed, reducing the amount of VAT that must be paid.