Accounting Advice – Can I really save £100’s by using the Flat Rate VAT scheme?
A: Yes, the Flat Rate VAT scheme (FRV) is a good tax break for small VAT registered businesses. A business can join if it expects an annual turnover below £150,000 (excl. VAT). When turnover reaches £230,000 (incl. VAT) it must leave the FRV. N.B. Not all businesses benefit from the FRV.
- Jim, a Management Consultant, invoices £5,000 p.m.
- He adds 20% VAT to his invoices. The invoice total including VAT is £6,000.
- His ‘VATable’ expenses are £300 per month including VAT.
- Normally Jim’s quarterly VAT bill would be £2,850 but under the rate for FRV which is 14% for his industry, Jim would pay only £2,520 saving around £1,320 p.a.
Ensure that you sign up for the correct rate because HMRC can review your accounts going back over 4 years. Search for Sector Rate on HMRC website.
Peter Bromiley ACA
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