using the flat rate VAT scheme to minimise your business VAT in the UK; wimbledon accountant; farringdon accountant; london accountant

Make VAT Efficient: Understand Flat Rate VAT

Maximizing VAT Efficiency: Understanding the VAT Flat Rate Scheme

Navigating the complexities of VAT can be a challenging endeavor for UK businesses, especially when looking for ways to simplify and potentially reduce tax liabilities. CIGMA Accounting, a leading UK accounting firm, sheds light on the VAT Flat Rate Scheme – an often underutilized yet beneficial approach for eligible businesses.

What is the VAT Flat Rate Scheme?

The VAT Flat Rate Scheme is a government initiative designed to streamline the VAT process for small businesses. Instead of calculating VAT based on the standard method (the difference between VAT charged to customers and VAT paid on purchases), businesses pay a fixed rate of VAT to HMRC. This simplification can lead to reduced administrative burdens and potential cost savings.

  • Fixed VAT Rate: Pay a set percentage of your VAT-inclusive turnover.
  • Simplified Accounting: Less paperwork and simpler VAT calculations.
  • First-Year Discount: Enjoy a 1% discount in your first year of VAT registration



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Eligibility Criteria

To join the VAT Flat Rate Scheme, businesses must:

  • Be VAT-registered.
  • Have a VAT taxable turnover of £150,000 or less (excluding VAT).

Joining and leaving the scheme

Joining is straightforward – either apply online when registering for VAT or use form VAT600FRS if already VAT registered. Leaving the scheme is equally simple; however, businesses must exit if they are no longer eligible or if their turnover exceeds certain thresholds.

Calculate your flat rate

The VAT flat rate varies depending on your business type. For instance, accountancy services have a rate of 14.5%, while catering services range from 4.5% to 12.5%, depending on the period. Notably, ‘limited cost businesses’ – those spending less on goods – are subject to a higher rate of 16.5%.

CIGMA Accounting’s Expert Insights

  1. Assessment is Crucial:
    Before opting for the scheme, it’s vital to assess whether it’s financially beneficial for your business. Factors like your industry, expenses, and turnover play a crucial role in this decision.

  2. Navigating Limited Cost Trader Rules:
    Introduced in April 2017, these rules can significantly affect your VAT rate. Understanding whether you fall into this category is essential for accurate tax computation.

  3. Monitor Your Turnover:
    Stay vigilant about your turnover. Exceeding the £230,000 threshold means you’ll need to exit the scheme.

  4. Capital Purchases Exception:
    Remember, you can still reclaim VAT on certain capital assets over £2,000.

  5. Professional Guidance is Key:
    VAT legislation can be complex. Seeking advice from experienced accountants like CIGMA Accounting can ensure compliance and optimize your tax position.

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

VAT for no consideration; london accountant; farringdon accountant

VAT Supplies for No Consideration: What You Need to Know

VAT Supplies for No Consideration: What You Need to Know

Value Added Tax, commonly known as VAT, is a part of everyday business transactions. However, not all supplies are straightforward, and the landscape gets complicated when dealing with VAT supplies for no consideration. This concept seems counter-intuitive because, in most cases, ‘supply’ generally involves a transaction for some kind of ‘consideration,’ whether in the form of money or in-kind.

But did you know that UK VAT law includes provisions for transactions made without consideration? These are considered supplies for VAT purposes. In this article, we’ll delve into these less talked about, yet critical areas of VAT compliance, guided by the information from HM Revenue and Customs (HMRC).

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What is Consideration?

Although the VAT Act 1994 doesn’t provide a legal definition for ‘consideration,’ HMRC refers to a definition from the EC 2nd VAT Directive Annex A13. It defines “consideration” as everything received in return for the supply of goods or services, including incidental expenses like packing, transport, and insurance. However, it should be noted that this directive is no longer in force after Brexit, but the conceptual framework remains.

Supplies for No Consideration: The Exceptions

1. Permanent Transfer/Disposal of Business Assets

If a business permanently transfers or disposes of its assets, the transaction is treated as a supply for VAT purposes. For example, if you give away a business laptop to an employee, this counts as a supply and is VAT applicable.

2. Temporary Application of Business Assets to Non-Business Use

When a business uses its assets for non-business activities temporarily, it constitutes a supply for VAT purposes. Suppose your business owns a vehicle primarily used for business tasks but occasionally gets used for private purposes. In that case, that non-business usage is subject to VAT.

3. Self-Supply of Goods or Services

When a business uses its own resources to generate goods or services, this ‘self-supply’ is considered a supply for VAT purposes. For instance, a construction company building its own office must account for VAT on the self-supplied labor and materials.

4. Retention of Business Assets After VAT Deregistration

If a business retains its assets after deregistering for VAT, this also constitutes a supply for VAT purposes. VAT will be calculated based on the market value of the assets at the time of deregistration.

5. Non-Business Use of Services with Recovered Input Tax

If services are put to private or other non-business use where input tax had previously been recovered, it is deemed a supply for VAT purposes.

Optimise your business finances with the best accountants in Wimbledon. Schedule a meeting with Cigma Accounting!

Need Assistance from an Accountant?

We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


Wimbledon Accountant

165-167 The Broadway

Wimbledon

London

SW19 1NE

Farringdon Accountant

127 Farringdon Road

Farringdon

London

EC1R 3DA



About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.