Please note that during the period of reduced VAT rates (ie 1 December 2008 to 31 December 2009), reduced flat rates also apply - click here for details.

For most small businesses, VAT is effectively an expense.  If they are not registered, they cannot reclaim the VAT on their expenses, whilst if they are registered, they have to pay over VAT on their income.  However, some may benefit from implementing the new flat rate VAT scheme, including some people who are not currently VAT registered.

Instead of adding up the VAT on sales and then deducting the VAT on purchases, the flat rate scheme enables a business to simply pay over a percentage of their turnover.  The percentage depends on the nature of the business - see the links to the tables.  However, businesses using the scheme cannot claim any VAT on their purchases - the amount paid to H M Customs & Excise is a straight percentage of takings.

Anyone with a turnover below £150,000 pa. can join the scheme and we review VAT registered clients when we prepare accounts, to see whether this would be worthwhile. 

The scheme may also interest those businesses that are not VAT registered, but make all, or nearly all, of their supplies to VAT registered customers.  They can add VAT at the full rate to his invoices, but need only pay over a reduced percentage to the VAT-man.