skip to navigationskip to main content

Traps in the VAT Flat Rate Scheme

Newsletter issue - April 09.

The Taxman likes to encourage small businesses to join the flat rate VAT scheme. This scheme simplifies your VAT return as you apply the relevant flat percentage applicable for your trade sector to all your total business income each quarter, (including the VAT charged), and pay the resulting amount as VAT to the Taxman as VAT. You don't have to worry about reclaiming VAT charged on purchases.

However, the flat rate VAT scheme does not suit all small businesses. The flat rate must be applied to all business income, including interest received from business bank accounts, rents, and sales of assets where VAT was not reclaimed, such as cars or property. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.

If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.

Remember the flat rates for most business sectors changed on 1 December 2008, when the standard rate of VAT was reduced to 15%, so check you are using the correct flat rate for your sector.

request-a-callback

Request a callback

Let us know and we will be happy to call you back.

get-in-touch

Get in touch

Simple way to contact us. Just fill in a simple form.

free-consultation

Free Consultation

We will offer as much advice as we can.

our-services

Our services

Find out details about what we can do for you.

Keep up to date

Why not sign up to our newsletter and keep up to date with all thats happening @KPSK Accounts & Tax Limited.

Please read our Privacy Policy before signing up