Many small businesses can save time by using the VAT flat-rate scheme. You may even make money out of the scheme if the flat-rate percentage applicable to your trade sector is particularly favourable for your business.
The tricky bit is picking the right trade sector for your business. Use normal English to describe what your business does and compare this to the HMRC guidance to work out which trade sector is the best fit. We can help you with that.
If your business activities fall into more than one sector, say, computer and IT consultancy (flat rate 14.5%), as well as publishing (flat rate 11%), you should judge which sector covers the majority of your sales (by value) and use the flat rate applicable to that trade sector.
Once within the flat-rate scheme you should review your choice of trade sector on the anniversary of the date on which you started to use the scheme. Estimate the value of sales which will fall in each trade sector, and pick the appropriate flat-rate percentage to use for the following year.
If you cease one or more business activities completely, this may mean the balance of your activities shifts, so that a different trade sector is the best fit for your business. In that case, use the new flat-rate percentage from the date the business activities changed, until the next anniversary of joining the flat-rate scheme.
Whenever you change the flat-rate percentage used, you should tell HMRC within 30 days of the date you changed and why you made that change. We can do this for you.
Clarke Nicklin in an independent practice based in South Manchester which offers Accountancy and Financial Planning services to a wide range of businesses and individuals.
0161 495 4700