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The Flat Rate Scheme was introduced as an simple way for small companies to calculate their VAT liability.

The Flat Rate VAT scheme is available to companies with a taxable turnover beneath 150,000 excluding VAT (also exempt and non-taxable sales ought to be beneath 37,500).

Beneath the flat rate scheme, you simply hold a percentage of the VAT charged to your buyers. The percentage you preserve varies depending upon which market you are in.

You ignore VAT on your purchases, the VAT you spend simply becomes a cost. Eg If you invest ten + VAT on stationery, the expense of that stationery becomes 11.75.

The flat rate scheme does permit you to reclaim the VAT on 'large' capital things - exactly where you spend far more than two,000 you can reclaim the VAT on that item.

Must I be on the flat rate scheme?

As you claim a percentage of sales, those with higher sales stand to advantage far more.

Those with low purchases (therefore paying little in reclaimable input tax) also stand to acquire from the scheme.

For example A organization with sales of 149,000 (excluding VAT) and in the category of "any other activity not listed elsewhere" - ten% flat rate and with negligible input VAT say 500 will save 8,068 per annum by switching to the Flat Rate VAT scheme.

To see how significantly you might save, try the Flat Rate VAT scheme calculator

How do I join the Flat Rate VAT Scheme?

The simplest way is to contact the VAT advice line on 0845 010 9000, who will be able to take your VAT registration quantity and pertinent specifics on the telephone, following which you will be registered following approximately 21 days.

Alternatively, you can download the scheme application type from HMRC .

How do I make a decision which sector my business falls into?

If your company has sales in two or far more sectors, you ought to apply the percentage suitable to the major enterprise activity, as measured by your sales.

Some sectors are clearer than other individuals. The distinction in between "other organization services" and "solutions not elsewhere specified" is far from clear. If you telephone HM Income & Customs for guidance, make sure you maintain a note of the name of the individual you speak to and the date of the call. ppi claims ppi claims ppi claims letter