If you have recently registered for VAT then it is important that you record all VAT income and expenditures correctly. This will ensure that you pay or claim the right amount of VAT. Therefore, when the time comes to register for VAT, you will be asked what accounting scheme you will choose to use. There are several schemes that you will need to consider and in this article, we are going to look at those schemes.
Annual VAT Accounting Scheme
Certain businesses have the option to take advantage of the annual accounting scheme. Therefore, they will only make one submission per year to HMRC. As a result, businesses will then pay an amount based on an estimate of what VAT was paid in the previous year. These payments can then be paid on a quarterly basis or on a monthly basis over a period of 9 months. Then, should you make any over or underpayments, this will be handled when you submit your next annual return.
Flat Rate Accounting Scheme
The flat rate accounting scheme is only applicable to some businesses and the list is quite long. However, in order to fit the criteria for the scheme, the business has to have a taxable turnover of up to £150,000 or less. As part of this scheme, you will be able to avoid the complexities that come with VAT accounting which means you will only pay VAT that is based on your yearly turnover. However, the rate that you pay will be dependent on the industry that you operate in.
You will still have to charge customers the full VAT rate which is dependent on the services or goods that you offer but you will not be able to submit a claim for any VAT that you pay out. The aim of the scheme is that you pay a lower rate of VAT because you are not able to reclaim the VAT that you pay out as you will still be charging customers the standard VAT rate.
It is possible to reclaim VAT for any expenditures that took place before you register for VAT. This can be done on goods that you have purchased for up to four years before registering while it is six months for services. If you have deregistered for VAT then there is a possibility that you can reclaim VAT or claim VAT on certain items, even though you have de-registered.
VAT might seem complex and it can be if you don’t record and manage your income and expenditures correctly. Therefore, it makes perfect sense to use the advice and guidance of experts to help you make the right decisions.