VAT a Pain?
HM Customs and Excise recently introduced an alternative to the normal method of VAT accounting – the Flat Rate Scheme. Designed to help small businesses (with VAT-able turnover less than £150,000), the scheme allows you to calculate your net VAT liability as a flat rate percentage of your total turnover – significantly reducing the time and effort required to produce the returns!
How does it work?
You do not claim back VAT paid on purchases (except single capital items costing over £2,000); instead you pay a flat rate percentage of your turnover. I.e. you take your quarterly turnover (including VAT), multiply it by your trade sector’s flat rate (see below), complete the return, write a cheque and post by the usual deadline.
The flat rate percentage applicable to your business depends upon what type of business you run – i.e. your trade sector. Flat rates were calculated by Customs and Excise based upon the averages of previous VAT returns of small businesses. The current applicable rates are:
|
Trade Sector (From
1 January 2004) |
Flat Rate Percentage |
|
Retailing food, confectionary, tobacco, newspapers or children’s clothing |
2 |
|
Membership organisations |
5.5 |
|
Postal and courier services |
5.5 |
|
Pubs |
5.5 |
|
Wholesaling food |
5.5 |
|
Farming or agriculture that is not listed elsewhere |
6 |
|
Retailing that is not listed elsewhere |
6 |
|
Wholesaling agricultural products |
|
|
Retailing pharmaceuticals, medical goods, cosmetics or toiletries |
7 |
|
Retailing vehicles or fuel |
7 |
|
Sport or recreation |
7 |
|
Wholesaling that is not listed elsewhere |
7 |
|
Agricultural services |
7.5 |
|
Library, archive, museum or other cultural activity |
7.5 |
|
Manufacturing food |
7.5 |
|
Printing |
7.5 |
|
Repairing vehicles |
7.5 |
|
General building or construction services |
8.5 |
|
Hiring or renting goods |
8.5 |
|
Manufacturing that is not listed elsewhere |
8.5 |
|
Manufacturing yarn, textiles or clothing |
8.5 |
|
Packaging |
8.5 |
|
Repairing personal or household goods |
8.5 |
|
Social work |
8.5 |
|
Forestry or fishing |
9 |
|
Mining or quarrying |
9 |
|
Transport or storage, including freight, removals and taxis |
9 |
|
Travel agency |
9 |
|
Advertising |
9.5 |
|
Dealing in waste or scrap |
9.5 |
|
Hotel or accommodation |
9.5 |
|
Photography |
|
|
Publishing |
|
|
Veterinary Medicine |
|
|
Any other activity not listed elsewhere |
10 |
|
Investigation or security |
10 |
|
Manufacturing fabricated metal products |
10 |
|
Boarding or care of animals |
10.5 |
|
Film, radio, television or video production |
10.5 |
|
Business services that are not listed elsewhere |
11 |
|
Computer repair services |
11 |
|
Entertainment or journalism |
11 |
|
Estate agency or property management services |
11 |
|
Laundry or dry-cleaning services |
11 |
|
Secretarial services |
11 |
|
Financial services |
11.5 |
|
Catering services, including restaurants and takeaways |
12 |
|
Hairdressing or other beauty treatment services |
12 |
|
Real estate activity not listed elsewhere |
12 |
|
Architect, civil and structural engineer or surveyor |
12.5 |
|
Management consultancy |
12.5 |
|
Accountancy or bookkeeping |
13 |
|
Computer and IT consultancy or data processing |
13 |
|
Lawyer or legal services |
13 |
|
Labour only building or construction services |
13.5 |
Because the flat rates are average, some businesses will pay less on the scheme whilst others may pay more. To find out how much you will pay using the Flat rate scheme and for more detail go to http://www.hmce.gov.uk/business/services/flat-rate-dets.htm.
Disclaimer: The information in this article is for obvious reasons generic in nature. You are advised to seek professional advice before implementing any of the above.
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