13 Jul What Is Flat Rate VAT And How It Can Benefit Your Business
If you’re the proud owner of a small business, then you already know that paying taxes can be one of the most complicated aspects of keeping your operations afloat. This is why the government has introduced the flat rate VAT. With this, company owners can easily calculate how much they owe and can avoid a lot of unnecessary conversion. If you have ever wondered, “What is flat rate VAT?”, then the information that follows is guaranteed to help.
This scheme is sometimes referred to as the VAT FRS. It is an alternative method that many small businesses are able to use for determining how much VAT they will have to remit the HMRC per quarter. Without the flat rate VAT, companies will have to pay an amount to the HMRC that represents the difference between the VAT that has been charged to their clients and the amount that they are able to claim from their supplier receipts.
When using this particular scheme, customers are charged the regular VAT as normal. You, however, will only need to pay a percentage of your company’s sales. This percentage is not a set amount, however, given that it can vary according to the industry in which a business exists. The good news is that there are plenty of online charts and graphs that list the percentage for each industry or trade for this very purpose.
You might think that this system is designed to save small-sized companies extra money. While this may be the case in certain instances, however, it is really focused on saving these entities time instead. Due to this fact, the percentages are set to vary according to individual trades given that some businesses are naturally prone to buying more supplies than others and can therefore claim significant higher amounts than others.
There are, however, opportunities to earn more from these efforts. A lot of companies have actually been able to generate thousands of additional pounds annually. This is because the FRS is easy for the government to manage and companies that use this system are actually acting and individual tax collectors.
Another benefit of this scheme is the ability to limit the amount of paperwork that you must generate, handle and retain. There is no need to submit any of your company’s input costs when filing quarterly with the HMRC. You will simply need to retain the receipts that you receive when making purchases.
There is an added benefit for new, small business owners. If this is your first year of using this particular scheme, you will be given an added incentive for doing so. This is an additional one percent decrease on the total tax percentage that must be paid by your company quarterly.
You should note, however, that depending upon the construct, industry and volume of your business, there may be an important drawback in using this scheme. For instance, if you have relatively high, chargeable VAT expenses, you will miss out on reclaiming these. This is also true if you happen to be purchasing a considerable amount of stock throughout the current tax year.