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VAT - A Simple Guide

If you are VAT registered, the options open to you regarding how you account for VAT have increased over the years, so this month we have provided a short summary which will hopefully guide you through the complexities.

 

Cash Accounting

 

If your turnover is below £1,350,000 then you are eligible to account for VAT on the basis of receipts and payments.  This is designed to help smaller businesses who will not need to pay VAT over to HMRC until they have received the money from their customers.

 

Invoice Accounting or Standard Method

 

This scheme is open to all those registered for VAT and you simply account for VAT based on the sales invoices you have issued and the purchase invoices you have received, regardless of whether you have received or paid the money.

 

Flat Rate Scheme

 

There is a simpler method of calculation which can be used whether you are ‘cash accounting’ or ‘invoice accounting’ and this is known as the flat rate scheme.  On this basis you do not need to work out the VAT on your sales and the VAT on your purchases but you simply look at the gross turnover (ie including VAT which you must continue to charge at the standard rate of 17.5%) and multiply it by the designated percentage for that profession, eg if you were a printer:-

 

Flat Rate Cash Accounting Scheme
Amount received in the quarter	£10,000
Flat rate percentage for printers	7.5%
Pay to HMRC	£750
Flat Rate Invoice Accounting Scheme
Invoices issued in the quarter	£10,000
Flat rate percentage	7.5%
Pay to HMRC	£750

 

There are many other specialised schemes for those whose turnover consists of exempt and standard rate items, but this will generally be discussed with your accountant upon registration (current registration limits are £64,000 annual turnover).

 

We have a number of different fact sheets available, so please read those and, as always, contact us with any queries.