“With great power, comes great responsibility”. The same can be said to be true when it comes to great businesses. Your business is likely to be achieving a return which requires you to register for VAT. Currently the VAT threshold which makes it mandatory for a company to register stands at a turnover of £85,000 per annum.

If your business is not quite there yet, you may still want to voluntarily register for VAT.

Great responsibility however, does not have to be a burden. In fact, strategic tax planning can mean that the company VAT return can provide benefits to the overall running of your business.

Vat Return

What we do for the Company VAT Return

There’s a reason we call ourselves business advisors as well as chartered accountants. That’s because we’ll always be behind you with the right numbers, but we’ll work alongside you for your business. We ensure that we get a full understanding of how your business operates in order to best advise you on which VAT scheme would be most advantageous.

Different VAT Schemes

Annual Accounting Scheme

The annual accounting system can be used for those with an estimated turnover of under £1.35 million. Businesses with a steady and stable year on year turnover, or those with gentle growth may elect to use this option and can continue to do so until they reach the threshold of £1.6 million turnover.

With annual accounting it means a business can either make 9 or 3 standard fixed payments in the year, with any outstanding amount to be paid with the VAT return or any overpayment to be claimed back with the VAT return. There is only one VAT return to be made and the fixed payments are calculated equally based on your previous year’s total VAT liability. If you are a new company then the VAT payments will be based on an estimation of your first year’s turnover.

In addition to less paperwork to be completed (as you reduce the normal four VAT returns to one single VAT return in the year) it can also help manage overall cash flow with more regular smaller payments. However, it is not recommended for businesses who regularly reclaim on VAT as they would only be able to do so once at the end of the year.

Cash Accounting Scheme

The cash accounting option is also available to those with a VAT turnover of less than £1.35 million per year. Your business VAT liability is calculated on payments made and received, rather than on invoices made and received. One advantage of this method is that it offers relief from bad debts as you won’t be liable to pay VAT on payments you do not receive yourself.

We may recommend cash accounting for those businesses who receive payment in arrears, and would similarly advise you to make purchases just before the end of your VAT quarter as it will enable you to claim back VAT quickly.

Flat Rate Scheme

This VAT return scheme is most suited for smaller SMEs. Those with a turnover of under £150,000 are eligible to use it, but once opted in, they may continue to use this option until they reach the threshold of £230,000.

We would recommend this option to clients who are looking to simplify their business administration. Instead of calculating what VAT can and cannot be claimed, your VAT liability becomes a fixed percentage of your turnover.  The percentage is dependent upon your industry and is determined by HMRC. The rates can be found here. Clients will have to continue charging VAT on their sales invoices.

Before proceeding, it is worth bearing in mind that you will be unable to claim VAT back on purchases made for the business (unless they’re capital items exceeding £2000). So if your business needs to make a lot of purchases, this option may not be beneficial.

There are other factors which need to be taken into consideration, and also other VAT schemes aimed at specific types of businesses and industries. All new prospective clients are invited to a free introductory consultation where we would use the time to understand the business specifics. This will give us a better appreciation of how the business operates and allow us to deliver the best possible advice.

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