Background:
The Flat Rate Scheme for VAT is a scheme specifically
designed by HMR&C to reduce the administrative burden on smaller VAT
registered businesses. The scheme is
restricted to business whose turnover does not exceed a specified
threshold. The scheme also excludes
businesses for a number of other reasons such as if the business has recently
been charged certain VAT penalties.
Application:
Under the Flat Rate Scheme the registered business charges
VAT at the standard rate/ applicable rate for the sale, however when it comes
to paying over the VAT liability to HMR&C the registered business
calculates its VAT liability at a specified “flat rate” based on the level of
sales. The “flat rate” is a
pre-determined percentage that is list out by HMR&C, this flat rate varies
from trading activity, see the current table of rates at Appendix 1 below
(taken from www.hmrc.gov.uk ).
If your business operates within several of the business
areas listed it is necessary to select one rate, and this must be the rate that
best reflects the main or core business activity i.e. the area of your trading
activity that generates the greatest turnover.
This “flat rate” percentage would be applied to your total turnover.
The only VAT on acquisitions that can be recovered while a
business is registered under the Flat Rate Scheme is on capital additions
costing more that £2,000.
Turnover Thresholds for Registration:
A business can apply to register for the Flat Rate Scheme
provided the annual turnover is not expected to exceed £150,000 excluding
VAT. Once your business is registered
on the Flat Rate Scheme the turnover excluding VAT can rise to more than
£230,000
First Year VAT Registration?
By way of a further incentive if in your first year of VAT
registration you enter the Flat Rate scheme then your business can benefit from
a 1% reduction to the appropriate flat rate.
This ‘introductory offer’ from HMR&C applies until the day before
the anniversary of your VAT registration, after which time you will be required
to revert to the standard Flat Rate for your business sector.
Record Keeping
It is essential that you keep a record of the calculations
to support your workings for each vat return and how your vat liability has
been arrived at. You should as a
minimum keep a record of the sales applicable for the vat period, the “flat
rate” percentage you are applying and the resultant vat liability.
Appendix 1
Flat Rate Scheme percentage rates from 4 January 2011
These rates will apply from 4 January 2011 until further
notice.
| Category of business | Appropriate percentage |
| Accountancy or book-keeping |
14.5 |
| Advertising | 11 |
| Agricultural services |
11 |
| Any other activity not listed elsewhere |
12 |
| Architect, civil and structural engineer or surveyor |
14.5 |
| Boarding or care of animals |
12 |
| Business services that are not listed elsewhere |
12 |
| Catering services including restaurants and takeaways |
12.5 |
| Computer and IT consultancy or data processing |
14.5 |
| Computer repair services |
10.5 |
| Dealing in waste or scrap |
10.5 |
| Entertainment or journalism |
12.5 |
| Estate agency or property management services |
12 |
| Farming or agriculture that is not listed elsewhere |
6.5 |
| Film, radio, television or video production |
13 |
| Financial services |
13.5 |
| Forestry or fishing |
10.5 |
| General building or construction services* |
9.5 |
| Hairdressing or other beauty treatment services |
13 |
| Hiring or renting goods |
9.5 |
| Hotel or accommodation |
10.5 |
| Investigation or security |
12 |
| Labour-only building or construction services* |
14.5 |
| Laundry or dry-cleaning services |
12 |
| Lawyer or legal services |
14.5 |
| Library, archive, museum or other cultural activity |
9.5 |
| Management consultancy |
14 |
| Manufacturing fabricated metal products |
10.5 |
| Manufacturing food |
9 |
| Manufacturing that is not listed elsewhere |
9.5 |
| Manufacturing yarn, textiles or clothing |
9 |
| Membership organisation |
8 |
| Mining or quarrying |
10 |
| Packaging | 9 |
| Photography | 11 |
| Post offices |
5 |
| Printing | 8.5 |
| Publishing | 11 |
| Pubs | 6.5 |
| Real estate activity not listed elsewhere |
14 |
| Repairing personal or household goods |
10 |
| Repairing vehicles |
8.5 |
| Retailing food, confectionary, tobacco, newspapers or children’s clothing |
4 |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries |
8 |
| Retailing that is not listed elsewhere |
7.5 |
| Retailing vehicles or fuel |
6.5 |
| Secretarial services |
13 |
| Social work |
11 |
| Sport or recreation |
8.5 |
| Transport or storage, including couriers, freight, removals and taxis |
10 |
| Travel agency |
10.5 |
| Veterinary medicine |
11 |
| Wholesaling agricultural products |
8 |
| Wholesaling food |
7.5 |
| Wholesaling that is not listed elsewhere |
8.5 |
