Businesses need to account for VAT on each item of their sales and purchases. Broadly, if you have collected more VAT on your sales than what you have paid on your purchases you pay HMRC the difference, and HMRC pays you if you paid more. Obviously, this involves a lot of time and effort. In order to save time HMRC runs a simplified Flat Rate Scheme (FRS) for small businesses. Basically you pay a fixed rate of VAT on the total value supplies inclusive of VAT, regardless of whatever VAT you have collected. To qualify the total turnover of your business should not exceed £150,000(not including VAT) in a year and your business will need to match one of the 55 categories listed below. If you can’t find an exact match you could join others ‘not listed anywhere’ under different categories. Once you join the scheme you need not account for, and you can’t claim back, VAT on your purchases except the VAT paid on capital goods costing (inclusive of VAT) £2,000 each. The scheme is ideal if:
- You pay very little input VAT e.g. labour intensive businesses with their operating costs comprising mostly salaries
- You are in a business with a lower rate of FRS e.g. pubs, retailing, printing etc
- You have no zero-rated, reduced-rate or exempt supplies
Businesses newly registered for VAT get an additional 1% discount during the first year of registration. Where your business undertakes more than one activity you will be classified in to one with the greater turnover. For example if your business has turnover from hair dressing (49%) and retailing of newspapers and tobacco (51%) you need to pay VAT at 3.50% on your total sales as retailing accounts for greater part of the business activity.
| Value Added Tax – Flat Rate Scheme | Up to 03/01/2011 | From 04/01/2011 |
|---|---|---|
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 3.50 | 4.00 |
| Post offices | 5.00 | 5.50 |
| Farming or agriculture that is not listed elsewhere | 6.00 | 6.50 |
| Pubs | 6.50 | 7.50 |
| Retailing vehicles or fuel | 6.50 | 7.50 |
| Retailing that is not listed elsewhere | 6.50 | 7.50 |
| Wholesaling food | 7.00 | 8.00 |
| Membership organisations | 7.00 | 8.00 |
| Retailing pharmaceutical, medical goods, cosmetics or toiletries | 7.00 | 8.00 |
| Wholesaling agricultural products | 7.00 | 8.00 |
| Printing | 7.50 | 8.50 |
| Repairing vehicles | 7.50 | 8.50 |
| Sport or recreation | 7.50 | 8.50 |
| Wholesaling that is not listed elsewhere | 7.50 | 8.50 |
| Manufacturing food | 8.00 | 9.00 |
| Manufacturing yarn, textiles or clothing | 8.00 | 9.00 |
| Packaging | 8.00 | 9.00 |
| General building or construction services* | 8.50 | 9.50 |
| Hiring or renting goods | 8.50 | 9.50 |
| Library, archive, museum or other cultural activity | 8.50 | 9.50 |
| Manufacturing that is not listed elsewhere | 9.00 | 10.00 |
| Mining or quarrying | 9.00 | 10.00 |
| Repairing personal or household goods | 9.00 | 10.00 |
| Transport or storage, including couriers, freight, removals and taxis | 9.00 | 10.00 |
| Computer repair services | 9.50 | 10.50 |
| Dealing in waste or scrap | 9.50 | 10.50 |
| Forestry or fishing | 9.50 | 10.50 |
| Hotel or accommodation | 9.50 | 10.50 |
| Manufacturing fabricated metal products | 9.50 | 10.50 |
| Travel agency | 9.50 | 10.50 |
| Advertising | 9.50 | 10.50 |
| Agricultural services | 10.00 | 11.00 |
| Photography | 10.00 | 11.00 |
| Publishing | 10.00 | 11.00 |
| Social work | 10.00 | 11.00 |
| Veterinary medicine | 10.00 | 11.00 |
| Any other activity not listed elsewhere | 10.50 | 12.00 |
| Boarding or care of animals | 10.50 | 12.00 |
| Business services that are not listed elsewhere | 10.50 | 12.00 |
| Estate agency or property management services | 10.50 | 12.00 |
| Investigation or security | 10.50 | 12.00 |
| Laundry or dry-cleaning services | 11.00 | 12.00 |
| Catering services including restaurants and takeaways | 11.00 | 12.50 |
| Entertainment or journalism | 11.00 | 12.50 |
| Film, radio, television or video production | 11.00 | 13.00 |
| Hairdressing or other beauty treatment services | 11.00 | 13.00 |
| Secretarial services | 11.50 | 13.00 |
| Financial services | 12.00 | 13.00 |
| Management consultancy | 12.50 | 14.00 |
| Real estate activity not listed elsewhere | 12.50 | 14.00 |
| Accountancy or book-keeping | 12.50 | 14.00 |
| Architect, civil and structural engineer or surveyor | 13.00 | 14.50 |
| Computer and IT consultancy or data processing | 13.00 | 14.50 |
| Labour-only building or construction services* | 13.00 | 14.50 |
| Legal or lawyer services | 13.00 | 14.50 |
