Should I join the Flat Rate Vat Scheme?

It is worth considering joining the Flat Rate Scheme (FRS) whether you are just setting up your business or you have been running a while and are now thinking about VAT registration.

If you would like to have a no obligation chat and talk through any of the material below, please give me a call or send me a text.

Benefits of Flat Rate Vat Scheme

  • It is simple to administer
  • You can save money
  • You are given a 1% discount in Year 1

Disadvantages of Flat Rate Vat Scheme

  • You cannot claim any expenditure prior to registration
  • You have to leave the scheme if your turnover exceeds £230,000 (this must include all income and capital sales (eg rental property sale proceeds)
  • You cannot reclaim input VAT on capital (single item) purchases <£2,000 (but a bundle of goods from the same supplier is claimable)

How does the Flat Rate Vat Scheme work? (example based on an FRS 14% rate)

  • Sales of £60,000; 20% VAT on Sales = £12,000
  • VAT inclusive turnover – £72,000
  • Pay HMRC £10,080 (14% x £72,000)
  • FRS adjustment/benefit (£12,000-£10,080) = £1,920
  • Add this to profit for the year

What types of businesses is the FRS not suitable for?

There are a number of factors to consider before deciding whether the FRS scheme is right for you and it is worth talking this through with an accountant beforehand.

Please note that the general rules governing VAT registration are covered in my earlier blog – ‘VAT Registration’.

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