This is a scheme where you are still VAT registered and charge 20% VAT on all of your invoices. Instead of claiming VAT on your purchases and other expenses, you pay over a lesser percentage on your sales.
This percentage is dependent on your business sector.
This is a scheme that mainly benefits those businesses that have very little by way of expenses.
Consultants are a prime example of a business that could benefit from being on the scheme. As a consultant for every £10,000 you invoice you would charge £2,000 VAT but only pay to HMRC £1,680. You would therefore save £320, providing you don’t have any expenses.
If you are on the flat rate VAT scheme you can claim input VAT on any fixed assets over £2,000. This includes assets such as vans, computer equipment and machinery.
Your VAT returns are all significantly simpler to complete under the flat rate scheme and can often save a large amount of time.
In your first year of being registered on the flat rate VA T scheme you will receive a 1% reduction in your rate as well.