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Q: What are the different VAT accounting Schemes?

A: There are several different types of VAT accounting schemes. You can find out more information on the different VAT Accounting schemes at these links:

VAT Cash Accounting Scheme
VAT Flat Rate Scheme
VAT Annual Account Scheme
VAT Margin Schemes
VAT Retail Schemes

Q. Am I allowed to switch from one accounting scheme to another and is this once every year?

A. It depends on the scheme, you can check on the website. For example, this is the information for the Flat Rate scheme:

VAT Flat Rate Scheme - Joining or Leaving

Q. Can the cash & annual scheme be used together?

A. Yes you can use them both together. Please see paragraph 2.8 in this VAT Notice for more information:

VAT Notice 732: Annual Accounting

Q. Do I need to inform HMRC if I choose to change scheme from cash accounting to a standard scheme?

A. No you don’t, you just need to make it clear in your VAT records that you have left the scheme.

Q. How are the initial payments on the annual accounting scheme decided? Is it based on previous returns?

A. This guidance explains how it is worked out:

VAT Notice 732: Annual Accounting

Flat Rate Scheme – Frequently Asked Questions

Q. Do I check if my business is a limited cost business every quarter?

A. Yes you would need to check and do the calculation each quarter. For further information, see:

VAT Notice 733 Section4: Flat Rate Scheme for small businesses

Q. What would I do if my taxable income goes just above 150k because I do better than expected?

A. Once you have started using the flat rate scheme you can remain using it until your turnover reaches £230,000. For further information, see:

VAT Flat Rate Scheme - Eligibility

Q. If my business has two brands operating in different sectors, can I still use the Flat Rate Scheme and, if so, how do I choose the flat rate percentage that applies?

A. If this is the case then you would apply the trade sector that is relevant to the brand with the highest turnover. For further information, see:

VAT Notice 733 Section 4.8

Q. Can I change from Flat Rate scheme to cash scheme?

A. The Flat Rate Scheme has its own cash based method that is very similar to the cash accounting scheme. For further information, see:

VAT Notice 733 Section 9

Q. What happens if I want to change from flat rate?

A. If you are looking at leaving the flat rate scheme then you would tell HMRC in writing. For further information, see:

VAT Notice 733 Section 12

Q. Do I calculate VAT due to HMRC on sales exclusive of vat or inclusive?

A. You would calculate based on your VAT inclusive turnover. For further information, see:

VAT Notice 733 Section 6

Limited costs trader

Q. Can the Flat Rate change each quarter? For example a limited cost business may apply one quarter but not the next.

A. Yes, that's correct so you would need to do the calculation each quarter to see if you are a 'limited cost trader’. For further information, see:

VAT Notice 733 Section 4

Q. If I am part of the Flat Rate scheme, do I always charge my customers 16.5% or should it be 20%?

A. The flat rate scheme doesn't affect the VAT that you charge, only the VAT that you pass on to HMRC, so if you sell items that are 20% VAT then this is what you charge to your customers.

Q. If I am a limited cost of business, and I am in my first year. Can I apply the 1% discount and pay 15.5%?

A. Yes, you can apply the 1% reduction to limited cost traders. VAT Notice 733 Section 4.7 will give you further guidance:

VAT Notice 733 Section 4

Q. Can you change scheme "level" on your VAT return each quarter or do you have to have each change confirmed by HMRC?

A. You simply work out each quarter whether you fall under limited costs or not and apply the appropriate FRS percentage rate -there is no need to tell HMRC this each quarter or seek any "approval". For further information, please see VAT notice 733 section 4:

VAT Notice 733 Section 4

Q. If my business fits the 16.5% new rate and I already paid 2 periods on my flat rate, what should I do?

A. You will need to recalculate the figures and submit a correction.

VAT Corrections

Please don't forget to check for each VAT return whether you should use 16.5% or your usual rate.

Q. Why would anyone register under FRS if they are a limited cost business when 16.5% of VAT inclusive turnover is virtually the same as 20% of the net turnover?

A. The main purpose of the Flat Rate Scheme is to simplify VAT for small businesses, rather than provide a financial benefit.