If your business is VAT-registered, you should make yourself aware of the multiple special schemes available. They are:
- Retail schemes
- Second-hand schemes
- Flat rate scheme for small business
- Annual accounting scheme
- Cash accounting scheme
- Tour operators’ margin scheme
Taking a closer look – Retail schemes
Retail schemes are created for businesses which cannot be expected to account for VAT in a normal manner due to very high frequencies of customers where there is no requirement to record a transaction in granular detail. This is helpful for businesses with large numbers of customers, such as supermarkets.
In a retail scheme, there is no upper limit to the value of sales your business can have to be eligible to join.
However, if your annual VAT turnover is over £130,000,000, you must agree on a bespoke scheme with the local VAT Business Advice Centre. If your turnover is lower than this amount, then you can use one of the standard schemes.
If your business supplies second-hand goods, such as works of art or antiques, you can use the margin scheme. In this scheme, your business can account for VAT on the difference between price paid and the price the item was sold for.
If you are eligible – you have the choice to use the margin scheme or account for your VAT in the normal manner. If your business doesn’t join this scheme your VAT will be accounted for on the full selling price. If your sales come within the margin scheme whilst others do not then the margin scheme can be used for certain sales, whilst the normal rules apply for others. In the margin scheme, VAT can be reclaimed on business overheads as normal.
In this scheme, your sales invoices should show the entire price including VAT at the standard rate. Your invoice should not show the VAT as a separate item.
Flat rate schemes for small businesses
This scheme allows for small businesses to register a fixed flat-rate percentage to the gross turnover that is expected when VAT is due. To be classed as a small business, you must have a turnover of £150,000 or under a year excluding VAT.
If your business has a total value of income over £230,000 at the end of the year, your business will be ineligible to join the scheme.
Annual Accounting Scheme
By joining the Annual Accounting Scheme, you lower the number of VAT returns made each year from four to just one. Your VAT can either be paid by three quarterly or nine monthly instalments.
If you do choose this scheme, HMRC will calculate and inform you of the instalment amounts you will pay and the dates to pay them by. These instalments must be paid electronically by direct debit, standing order, or another suitable means that HMRC specifies.
At the end of the year, your business submits its VAT return along with any outstanding balance. HMRC will refund you the excess if you have paid too much money throughout the year. Annual returns have a due date of two months following the end of the annual accounting year.
In your VAT return, the dates from the start and end of the VAT period will be shown as will the due dates.
Cash Accounting Scheme
If your business is already VAT registered and otherwise eligible to use this scheme, it can be used as soon as the start of the next VAT period. This is because you are not required to apply to use this method.
Your businesses output tax must be included in the return for the VAT period in which payment was received. In your VAT return, input tax can be reclaimed and payment or another consideration will be granted.
The amount of VAT you should expect due are based on payments received and made. This is also the case with the amount of VAT deductible. This excludes invoices issued as the output and input amounts must be based on payments received and made.
Tour operator’s margin scheme
In this scheme, the value of supply on which VAT is due will be the amount of commission due from the fee charged. The input tax the intermediary receives can be reclaimed in the standard way.
In this scheme, complications may arise. These complications can be due to issues when determining the place of supply and whether the travel agent is acting as an intermediary or as an agent in their own name.
Can I use multiple VAT schemes at a time?
If you want to join two schemes at a single time, you should consider that there are only certain combinations that can be used together.
- The cash accounting scheme can be used alongside the annual accounting scheme
- The annual accounting scheme can be used alongside the flat-rate scheme
- The cash accounting scheme cannot be used alongside the flat-rate scheme (due to the flat-rate scheme having its own version of cash accounting)
Talk to us
If you want to know about the VAT scheme most suitable to your business, speak to the Financial Management Centre today. Please call us today on 0800 470 4820 or email [email protected]