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The Flat Rate Scheme was introduced as an simple way for tiny companies to calculate their VAT liability.

The Flat Rate VAT scheme is accessible to organizations with a taxable turnover below 150,000 excluding VAT (also exempt and non-taxable sales really should be beneath 37,500).

Under the flat rate scheme, you simply hold a percentage of the VAT charged to your customers. The percentage you keep varies depending upon which market you are in.

You ignore VAT on your purchases, the VAT you spend just becomes a price. Eg If you invest ten + VAT on stationery, the expense of that stationery becomes 11.75.

The flat rate scheme does allow you to reclaim the VAT on 'large' capital items - exactly where you devote more than 2,000 you can reclaim the VAT on that item.

Should I be on the flat rate scheme?

As you claim a percentage of sales, those with higher sales stand to advantage far more.

These with low purchases (for that reason paying little in reclaimable input tax) also stand to acquire from the scheme.

For example A enterprise with sales of 149,000 (excluding VAT) and in the category of "any other activity not listed elsewhere" - ten% flat rate and with negligible input VAT say 500 will save 8,068 per annum by switching to the Flat Rate VAT scheme.

To see how a lot you could save, attempt the Flat Rate VAT scheme calculator

How do I join the Flat Rate VAT Scheme?

The easiest way is to contact the VAT assistance line on 0845 010 9000, who will be capable to take your VAT registration number and related details on the telephone, following which you will be registered following about 21 days.

Alternatively, you can download the scheme application type from HMRC .

How do I determine which sector my enterprise falls into?

If your business has sales in two or more sectors, you must apply the percentage suitable to the principal company activity, as measured by your sales.

Some sectors are clearer than others. The distinction between "other business services" and "services not elsewhere specified" is far from clear. If you phone HM Revenue & Customs for guidance, make sure you keep a note of the name of the particular person you speak to and the date of the call. ppi claims letter ppi claim letter ppi claims