VAT flat rate scheme – update
With VAT increased to 20%, businesses that use the flat rate scheme have to check what new rate to use. In this connection, guidance re ‘VAT & the Flat Rate Scheme for small businesses’ has been updated. The new notice (733) cancels and replaces the previous version published in January 2010.
Businesses that use the flat rate scheme pay VAT as a fixed percentage of their total turnover, including all VAT charged to customers/clients. This simplifies their recordkeeping and reporting processes. The actual flat rate percentage depends on the type of business. The amount of VAT incurred on business expenses becomes irrelevant to the business’s VAT returns.
The new guidance has been updated to include:
- A link to the updated table of flat rates which came into effect with the increase in the standard rate of VAT to 20%.
- Clarification of the rules for applying the 1% reduction for new VAT registrations.
- Clarification of how to deal with purchases of services from outside the UK to which the reverse charge applies.
HMRC have also made some changes to improve the layout and clarity of the notice.