VAT flat rate scheme available to small businesses
The VAT flat rate scheme is available to small businesses with a turnover
of up to £150,000. Businesses using the scheme pay VAT as a flat percentage
of turnover which varies according to the nature of the business.
These rates will be changed to reflect the new lower rate of 15% VAT. In
addition, the requirement that anticipated total annual income is less than
£187,000 before joining the scheme will be removed. However, if annual
income exceeds £225,000, a business must leave the scheme. The method of
determining income has not been defined in the legislation, but HMRC has
announced that taxpayers must use the same method as they use to determine
VAT payable whilst on the scheme. Accordingly, if a business calculates its
VAT liability on cash received the leaving test will also be based on cash
received. If the VAT liability is calculated on the basis of invoices issued
then the leaving test will also be based on this method.
The changes will take effect from 1 April 2009.
Our view
These simplifications will be welcomed by small businesses.
