For a long time now, small businesses registered for VAT have had the option to streamline the VAT return process, providing their turnover is below £150,000. By paying VAT on a percentage of gross sales they have been able to significantly simplify their quarterly bookkeeping process.
This is about to change with Making Tax Digital. The requirement to make quarterly returns of all transactions means that the administrative incentive is about to disappear. Businesses will have to decide whether they want to remain in the scheme for other reasons. One of the most compelling could be the tax savings some business categories have been able to obtain.
The Flat Rate applied will depend on your business category and ranges from pubs to hotels and from sport or recreation to restaurants and takeaways. The rates are designed to give you an administrative incentive. However, many business categories have historically been able to apply rates which give them an inflated 'profit' on sales.
H M Revenue & Customs have started to address this with the introduction of an additional Flat Rate for businesses that have limited costs. If this rate applies to you it is worth checking to see if it would be better to go back to accounting for VAT on both sales and purchases. Ironically the move towards Making Tax Digital makes this process simple. If you are recording all of your business transactions regularly through a good cloud accounting software package you can consider whether the Flat Rate Scheme is appropriate for your business.
Armed with this information care should be taken to make the right decision for your business. At Thomas Westcott we can help you make that decision. We can also help you to prepare for Making Tax Digital by helping you choose right accounting package for you.
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