VAT – When to apply, how to calculate and money and time saving options available to small businesses.

All businesses need to consider their VAT status whether they are currently VAT registered or not in order to ensure that VAT is being calculated correctly and that the company is on the most appropriate VAT scheme.


When to register for VAT

The current compulsory VAT registration threshold is £85,000 turnover within the last 12-month period. Once a business surpasses this threshold, or will do so within the next 30 days, then the business must register for VAT. It is therefore essential that business owners pay close attention to their turnover.

If turnover goes over the threshold temporarily, then a registration exception may be granted by HM Revenue and Customs, by providing evidence that the turnover is below the current deregistration threshold of £83,000.

Businesses may apply for voluntary registration for VAT at any time if their turnover is below the £85,000 threshold. Any VAT due from the date of registration is payable to HM Revenue and Customs.


What VAT Schemes are there

Accrual Accounting Scheme

The standard method to calculate VAT is used by many companies but may not be appropriate for all businesses and could be a burden on cashflow for small businesses. The Accruals Accounting Scheme calculates the VAT based on the date of an invoice, this means that all VAT on sales invoices raised less VAT on purchase invoices received will be due to HM Revenue and Customs, regardless to whether the money has been received. The VAT periods may be monthly or quarterly.

Cash Accounting Scheme

The Cash Accounting Scheme calculates the VAT based on when an invoice is paid, regardless of the date of the invoice. This means that any VAT on sales invoices will only be payable once a customer has paid the invoice, however you may only claim VAT on purchase invoices once they have been paid also. The VAT periods may be monthly or quarterly. To be eligible for the cash accounting scheme, the turnover must be £1.35 million or less.

Annual Accounting Scheme

The Annual Accounting Scheme reduces the administration process of completing VAT submissions. Instead of monthly or quarterly returns just one VAT return is submitted for the year. The VAT payments are made in advance by either nine monthly or three quarterly payments, with a balancing payment made for any VAT owing. The advanced payments are based on the previous year’s liability. The scheme is available to businesses with a turnover of £1.35 million or less.

The downside of using the scheme is that if trade changes significantly then the payments on account may not reflect the liability for the year and a larger balancing payment/refund may occur.

Flat Rate Scheme

Under the Flat Rate Scheme, a fixed rate of VAT will be paid to HM Revenue Customs. This rate is based on the industry that the business operates in and is determined by HM Revenue and Customs. In order to simplify the calculation of VAT the percentage rate is applied to the gross turnover for the period and this amount is payable to HM Revenue and Customs.

VAT on expenses cannot be claimed on this scheme, however capital expenses over £2,000 can be claimed.

Over recent years there have been changes to this scheme which mean businesses with limited costs have to use a flat rate of 16.5%.

This scheme is available for businesses with an annual turnover of £150,000 or less.

Other Schemes

There are other VAT schemes for specific industries such as retail and second-hand goods, if you would like to discuss these, please contact our office.


To discuss any VAT queries that you have, please contact us on 01480 596636.


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