What is VAT and how is it applied?
Becoming VAT registered is compulsory once your business’ turnover is more than £85,000 within a 12-month period. SeavorChartered can register your business and can also provide you with an end-to-end service which includes the preparation of your business’ VAT along with submission to HMRC. We can assist you on how best to keep your records to ensure you are MTD (Making Tax Digital) compliant.
You can voluntarily register your business for VAT, but we can advise if this would be beneficial for your business and at which point voluntary registration should be actioned.
In most instances, VAT is applied to your sales invoices which you are then required to pay over to HMRC, and the VAT on your expenses is then claimed back/offset against your sales.
However, this isn’t always the case dependent on the sales product you provide and the type of expenses your business suffers.
The Standard Rate for VAT is 20%, however some goods and services are rated 5%, can be Zero Rated or have No VAT applied at all. This then affects how much you pay or reclaim.
The 4 Main VAT Schemes
- Standard Accounting (Also known as Accrual or Invoice Basis)
The Standard Accounting scheme allows your business to pay and recover VAT based on when you raise and receive invoices. VAT payable and recoverable, is all based on the customer or supplier but is usually 20%.
The Standard Accounting scheme may not be beneficial to businesses whose customers are not timely payers or businesses who prefer to pay their expenses after the month of when the invoice was raised, for example on a term’s payment or credit account.
2. Cash Accounting
The Cash Accounting scheme allows your business to pay and recover VAT once payment has been made or received. VAT payable and recoverable, is all based on customer or supplier but is usually 20%.
The Cash Accounting scheme can be beneficial for cash flow if customers don’t pay your business’ sales invoices in a timely manner or you prefer to pay your expenses after receiving the invoice, for example on a term’s payment or credit account.
3. Flat Rate
The Flat Rate scheme is for small businesses only, with a turnover of £150,000 or less. Expense VAT is not reclaimable on this scheme, however, may save your business money due to being a fixed percentage based on what sector your business is in.
The Flat Rate scheme is not available to businesses who are closely associated with another business or those who have committed a VAT offence within the last 12 months.
4. Annual Accounting
The Annual Accounting scheme allows you to submit one return annually rather than per quarter. During the year, you pay instalments based on an estimated liability for the year with a balancing payment/repayment due with the submission of the annually prepared return.
The Annual Accounting scheme is ideal for businesses who want to free up capacity when it comes to record keeping and prioritising their paperwork. However, this scheme is not often utilised.
How we can help
Choosing the right scheme for your business can be daunting, that’s where SeavorChartered can advise and support you to ensure you’re getting the most from the scheme you choose.
If you’d like to know more about which scheme would benefit you and your business or to learn more about registering for VAT, or any of our services we provide, give us a call on 01228 904904 or message us at mail@seavorchartered.co.uk.
