VAT schemes for small businesses

Flat Rate Scheme

You pay VAT to HMRC using a fixed percentage for your trade sector instead of calculating output VAT and input VAT in the usual way. The scheme is open to businesses with expected VAT taxable turnover of £150,000 or less, excluding VAT.

A limited cost business uses the 16.5% rate. Check the cost-of-goods test for each VAT period where your costs sit close to the limit.

Cash Accounting Scheme

You account for output VAT when customers pay you and reclaim input VAT when you pay suppliers. You can join if your expected taxable turnover is £1.35 million or less.

This can help when customers pay late because you account for output VAT when they pay. Keep complete records and check whether any scheme exclusions apply.

Annual Accounting Scheme

You submit one VAT Return each year and make advance payments based on your previous return or an estimate if you are new to VAT. The scheme is available where expected taxable turnover is £1.35 million or less.

You prepare one return each year, while advance payments spread the cash cost. Keep your bookkeeping current so the annual return is ready.

Compare the cash and admin effect

Compare customer payment dates, VATable purchases, input VAT reclaimed and the records each scheme requires. Ask your accountant to model a recent period under the schemes you can use before changing your VAT accounting.

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