How to reduce your VAT burden
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Those with an annual, VAT-exclusive
turnover below £150,000 per year may make big savings in their VAT
payments by operating the 'flat rate scheme'.
Once approved to use the scheme by HMRC, a business can account
for VAT on their turnover at a lower rate, while still charging
customers the full 20 per cent.
Different rates apply to different types of business; for
example hairdressers or beauticians account for VAT at a rate of 13
per cent, a management consultant 14 per cent, an architect or
surveyor 14.5 per cent, a general builder (providing goods as well
as services) 9.5 per cent and pubs 6.5 per cent.
In return, the business does not make a separate claim for VAT
on its purchases, except for capital items over £2,000 (eg a
commercial vehicle or plant and machinery) or stock and assets on
hand at the date of registration, for which VAT can be recovered as
normal.
If using the scheme within the first year of VAT registration
the published rate can be reduced by 1 per cent for that first
year. Once on the scheme, a business does not have to leave it
until its tax inclusive turnover in the last 12 months, or looking
forward, in the next 30 days, exceeds £230,000.
Those having difficulties with customers' late or non-payment of
invoices may also find it beneficial to use cash accounting
alongside the flat rate scheme, which allows the business to
account for VAT only once it receives payment.
Tuesday, March 08 2011
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