If you are a trader in the UK with taxable sales of less than £150,000 then instead of getting bogged down while maintaining vat accounts in detail you should focus on increasing your sales by opting for vat flat rate scheme. This scheme allows you to charge a flat percentage of vat to your clients without the need to maintain detailed vat accounts.
Under standard vat accounting procedure you would need to pay vat to your suppliers and charge vat to your clients. Each vat invoice issued by you would also require you to show the vat rates and vat amount while the same would need to be shown in great detail in your vat return. However, if you are on the verge of breaking through the vat threshold limit of £70,000 in taxable sales within the past 12 months and you do not wish to get entangled in maintaining tedious vat accounts then opting for the flat rate scheme would be the best option.
Although you would be required to display the vat rate in your invoice, you would not be required to maintain a detailed account of how much vat you have charged on every single invoice. You would only need to submit your total taxable sales in the required period and pay a flat rate of vat over that amount. In addition, if you directly opt for the flat vat rate scheme in the first year of vat registration then you would also be entitled to a special discount of one percent from HM Revenue and Customs or hmrc vat department that collects vat from all vat registered traders and implements uk vat rules.
However, you can enjoy these benefits only until your sales touch £225,000 after which you will be compelled to exit this scheme and join any other applicable vat scheme. All these thresholds are slated to change from January 4, 2011, when standard rates of vat all across the UK increase from 17.5% to 20%. If, however, you have tried out this scheme in the previous 12 months or are part of a group or division, or have been convicted or charged for any vat offence then you will not be eligible for the vat flat rate scheme. There are also certain other factors that can compel you to remain outside this scheme.
While you can avoid maintaining vat accounts in great detail and also get a one percent discount to join the flat rate scheme, you will certainly lose out on revenue if you generally purchase standard rate goods or services as this scheme will not allow you to opt for vat refunds. If your turnover consists mostly of zero vat rate or VAT exempt sales then again this scheme is not suitable for your business. If you have normally received vat repayments while following the standard vat rate scheme then this too could stop once you switch over to the flat vat scheme. You should consult your vat agent and weigh all existing and future facts before you enter or shift into this scheme.
If you do not expect your business to rise rapidly in the near future then you should opt for a vat accounting scheme that is easy to maintain and takes up least amount of time and energy from your business. You should check all facts related to the vat flat rate scheme and opt for the same if both you and your vat agent come to the same conclusion that such a scheme is indeed right for your business model.