How to choose a VAT scheme for your business

When you start up your business there is a range of choices that you will have to make, and these choices can be instrumental to your business’ future success.

One of the things that you will have to do is decide on the right VAT scheme for your business. This will apply to you if you’re over the VAT turnover threshold of £85,000 per year, or if you’re looking to register your VAT and your turnover is under the required threshold.

There are a few different VAT schemes to choose from, therefore, it’s best to consider a range of options before deciding on the right one for your business. To help, we’ve put together this handy guide on the different VAT schemes for small businesses.


Standard VAT scheme

The standard VAT accounting scheme, also known as the VAT accrual scheme, is whereby VAT is recorded for each transaction, and this is then paid on a quarterly basis to HMRC. You can either use an automated accounting software to keep track of your VAT data, or you can record this manually. No matter which option you choose, you should compile a detailed list of your VAT transactions to make things simpler when it’s time to submit your VAT return.


VAT flat rate scheme

The VAT flat rate scheme gives you the chance to apply a fixed-rate percentage to your overall gross turnover, which will amount to the VAT that is due to be paid to HMRC.

To be eligible for this scheme, your firm must be eligible to register for VAT, your yearly turnover must be less than £150,000 (excluding VAT), and your business must not be associated with another.


VAT retail scheme

VAT retail schemes can make it easier for you to calculate your VAT. There are three main types of VAT retail scheme to choose from, including:


  • Point of sale (P.O.S) scheme: VAT is identified and recorded at the time of the sale


  • Apportionment scheme: Only used for businesses that buy goods for resale
  • Direct calculation scheme: Some VAT sales are made at one rate and the majority are made at another rate



These schemes cannot be used in conjunction with the VAT flat rate scheme, however, they can be used with the cash accounting VAT scheme and the annual accounting scheme.


Cash accounting VAT scheme

With this scheme, you must pay VAT on your transactions after you’ve been paid by your customers, and you can reclaim money back on your VAT after you’ve paid your supplier.

Similarly to the standard VAT scheme, your VAT return must be submitted every quarter. However, to be eligible for the scheme, your annual turnover must be £1.35m or less.


VAT margin scheme

With the VAT margin scheme, you will pay 16.6% VAT on the difference between the price you paid for an item and the price you sold it for.

There are some limitations to this scheme, for example, you can only choose to use a margin scheme when you sell second-hand goods, art, antiques and collectors’ items. There are also specific rules you should follow when selling second-hand cars, horses and ponies, houseboats and caravans.


Which is the right option for your business?

There are multiple options out there when it comes to VAT schemes, making the decision all the more difficult. If you’re new to tax and VAT, it helps to get in touch with the professionals to ensure you’re making the right decision for you and your organisation. Fortunately, the team at Alexander & Co can help.

We have a dedicated team of tax accountants in Manchester and central London, who can offer advice, assist with tax-related queries and find the most efficient taxation methods for your business so you can maximise your financial potential. To learn more about how we can help your business succeed, get in touch with a member of our team today.

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