VAT

Saving money with VATDid you know there are three ways to calculate your VAT? Choose the right method and you’ll save money, save time on your paperwork and improve your cash-flow in one easy move.

VAT is normally calculated quarterly by working out the VAT on the sales less VAT on the purchases. The payment is due by the end of the following month for the quarter.

For smaller businesses, there are also three different schemes in which a company can pay for their VAT, the scheme that you choose will depend on the turnover and how long customers take to pay you.

Flat Rate Scheme VAT

Only businesses with a turnover under £150,000 can use this scheme.

The VAT is worked out by applying a flat rate percentage to the total turnover (including VAT). The percentage depends on the type of business but is between 2% and 13.5″.

The advantage of this scheme is that there is less time involved: the VAT is calculated on the total turnover. It is simpler than doing VAT the normal way as you do not need to record the VAT on small purchases.

If you company is just registering for VAT a further 1% can be discounted for the first year only.


Cash Accounting Scheme

Only businesses with a turnover under £1,350,000 can use this scheme.

With this scheme, the company only pays their VAT when they have been paid by their customers: If you are paid late by a customer you do not need to pay the VAT until the debt has been paid.

If for any reason the account is not paid then you do not have to pay the VAT at all.

Annual Accounting Scheme

Only businesses with a turnover under £1,350,000 can use this scheme.

The company pay either by monthly or quarterly instalments and complete a single return at the year end with any balance due.

The advantages of this scheme is that you know how much VAT you are going to pay either each month or quarter: you have no big bills and less time will be spent on filling in VAT returns.

Return from VAT to Business Accounting Basics page.