For some businesses, the VAT Flat Rate Scheme could ‘earn’ you up to £3,000 or more per year in VAT ‘savings’. If for example your business supplies services only to VAT registered clients, e.g. as a website development company or advertising agency, then sales invoices will include 20% standard rate VAT. This VAT is collected from the client when your invoice is paid by them but it is monies you owe HMRC.
Under the Flat Rate scheme you may need to only give HMRC, say 12% of the VAT you have collected.
The rate differs for different business sectors. You won’t be able to recover / offset any VAT you have incurred on your purchases… BUT for some businesses the amount of purchase VAT can be minimal. The net effect is that you collect more VAT than you have to pay to HMRC.
Some businesses can gain substantial sums per year under this scheme.
*Tip: * Consider the VAT Flat Rate scheme as a way of gaining a favourable cash advantage for your business. Check your numbers and the details of the scheme to make sure it is right for you and that it will be favourable. If in doubt, ask your accountant to look at the scheme for you.