After you register for VAT, you will automatically be assigned to Standard VAT Scheme. However you might be able to opt for other types of schemes available if you meet certain criteria.
These schemes are explained more in details below:
Standard VAT Accounting
Under this scheme you would be able to claim VAT on purchase invoices, when an invoice is received. You will also be liable to pay the VAT charged on any sales invoices at the time invoices are issued.
Quarterly or monthly VAT returns need to be submitted and paid to HM Revenue & Customs. (Related read: Dummies guide to VAT).
Annual Accounting Scheme
This scheme will allow you to submit one VAT return at the end of the year. However you need to pay VAT on account throughout the year in nine monthly or 3 quarterly instalments. The instalments are based on the VAT liability in the previous year or an estimate of your VAT if it is a new business.
You can opt to this scheme if your estimated VAT taxable turnover is less than £1.35m.
This scheme has several advantageous:
- Only one annual return is require, therefore less paper work is required
- Cash flow is more manageable
- It’s possible to make additional payments as and when you wish
Cash Accounting Scheme
You will need to pay VAT when the customers pay for their invoices, instead of when invoice is raised. You will also reclaim VAT on purchases when you pay the supplier invoices.
Similar to Annual Accounting Scheme, your VAT taxable turnover should be less than £1.35m to qualify for this scheme.
The advantageous of this scheme are:
- Cash flow is more manageable when customers are slow in paying the invoices
- You don’t pay VAT if your customer never pays you. (Related Download: VAT Cashflow Forecast)
- Flat Rate Scheme
This scheme is designed to help small businesses. Under this scheme a flat rate percentage of turnover is payable instead calculating VAT on every single transaction.
The VAT taxable turnover should be less than £150k to qualify for this scheme.
The record keeping is easier under this scheme with fewer rules to follow and cash flow is easier as you will know how much you are paying for VAT.
There a variety of factors, such as type of business, its stage of development and cahflow requirements which affect the decision in choosing the right VAT scheme for you. Check with your accountant on which one would best your current situation.
Behnaz Rayati is a Management Accountant with Expert Accounting & Finance http://www.expertacc.com/.
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