- The major advantages of the FRS over the ’normal system’ is that you will not be required to track each and every purchase when preparing your VAT returns, making this process much simpler
- The system is simple and so errors are avoided and figures can be easily checked
- It can be the case that the rate for your business means that you will actually be financially better off than using the normal system of calculation. This can particularly be the case with consultants or those who have very few VAT inclusive purchases
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Smaller businesses can often benefit from joining the VAT Flat Rate Scheme.
The Flat Rate Scheme (FRS) for VAT is a much more simplified version of the normal VAT Scheme. The basic principles of the FRS are that you charge VAT on your sales as normal, but that when it comes to calculating your VAT payable to HMRC, you simply pay a flat rate percentage.
This removes the requirement to calculate the VAT on your purchases (inputs) and offset this against your VAT on sales (outputs). Instead you just pay a fixed percentage of your turnover to HMRC. The relevant percentage depends on the goods or services you provide.
Initially you need to be registered for VAT in the normal way, but you can apply for the Flat Rate Scheme if you expect your taxable turnover to be below £150,000 in the next twelve months. Once you join, even if your business income exceeds this limit, you can stay on the scheme until your total business income exceeds £230,000. The only criteria which would prevent you from joining would be if you have previously been in the scheme in the past 12 months, if you operate in one of the excluded industries or if your business is closely associated with another business.
Some may be sceptical as to whether the FRS is more beneficial to their business compared to the standard VAT scheme. A few advantages of the FRS are listed below:
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