A Quick Guide to VAT Schemes for Smaller Businesses

If you’re a business operating in the UK, then the chances are you’ll have to register for VAT. And that can be a pain, both in terms of the processes and the financial burden –  but there are a number VAT schemes available that can simplify compliance or reduce the tax burden for certain types of businesses.

Flat Rate Scheme (FRS)

The FRS is a simplified VAT scheme that allows businesses to account for VAT using a flat percentage of their total turnover. This scheme is suitable for businesses with a turnover of up to £150,000. The flat rate percentage varies depending on the type of business. This means:

• Reduced administrative burden: No need to record and account for VAT on individual sales and purchases.
• Potential cash flow advantage: In some cases, the flat rate percentage may be lower than the VAT paid on purchases, resulting in a cash flow benefit

Cash Accounting Scheme (CAS)

The CAS allows businesses to account for VAT based on the timing of cash receipts and payments rather than the time of sale or purchase. This scheme is suitable for businesses with a turnover of up to £1.5 million. This can result in:

• Improved cash flow: VAT is only accounted for when payments are received or made.
• Simplified record-keeping: Reduced need to track VAT on individual transactions.

Annual Accounting Scheme (AAS)

The AAS is a simplified scheme for businesses with a turnover of up to £1.5 million that allows them to account for VAT on an annual basis. This scheme is suitable for businesses with infrequent VAT transactions. The benefits are:

• Reduced administrative burden: Less frequent VAT returns.
• Simplified record-keeping: Fewer VAT-related transactions to track.

Margin Scheme

The margin scheme is a special VAT scheme for the sale of second-hand goods, works of art, and antiques. It allows businesses to account for VAT based on the difference between the sale price and the purchase price or cost of production. What that means is:

• Reduced VAT liability: VAT is only paid on the profit margin.
• Simplified record-keeping: No need to account for VAT on individual purchases or sales.

Tour Operators Margin Scheme (TOMS)

The TOMS is a special VAT scheme for tour operators that allows them to account for VAT based on the difference between the total revenue from a tour and the total cost of the tour. This may be a little specialised, but can result in:

• Reduced VAT liability: VAT is only paid on the profit margin.
• Simplified record-keeping: No need to account for VAT on individual components of a tour.

The best VAT scheme for you depends on several factors, including the type of business, turnover, and the frequency of VAT transactions. Some of the above may apply to you – but most won’t.

We’re experienced in this area, so if you feel that your VAT is either too burdensome or too much of a financial liability, we may not be able to solve everything for you (it is the law, after all), but we can help you find the best way through. So get in touch, and let’s chat.