When you are working as a contractor or even carrying out some business activities in the UK, you need to be aware of the important yet complicated facts of the incredibly tedious VAT scheme. It is a mandatory part for businesses in the UK to become registered for VAT. Especially, when you see your taxable turnover, has gone above the limit of the threshold. Even when a business expects the turnover will go over the threshold limit, it must go for VAT registration right away. People are often confused about what are VAT schemes in the UK. As there are multiple options for VAT schemes that you can choose as per your business suitability.
It is important for you to opt for the right VAT scheme for your business growth, you can even ask for professional advice in this regard. Some businesses choose to opt the VAT registration even before the threshold is met. There are several benefits to opting for voluntary registration of VAT. You still need to be conscious about weighing the pros and cons before you rush toward a final decision. You can even ask your accountant to guide you according to your unique business circumstances so that you can make the right choice. Furthermore, this guide will also help you to gather information about multiple types of VAT and which one will be suitable for your business. Let us get delved further into the discussion.
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What is a VAT Scheme in the UK?
Once you are finally up for VAT registration, there will be multiple options that might confuse you if you have not gathered the information from your accountant or other professionals. As you will require to pay HMRC, opting for a scheme will affect your calculations and the way you choose to make your calculations as well. So this is an imperative discussion of choosing the right VAT scheme for your business to bring in the most benefits for you. The standard VAT scheme and its understanding will help you in the process of choosing the right VAT scheme for your business. This is the kind of VAT scheme that also all businesses get along with by default.
What is the Standard VAT Scheme?
Once your business gets registered for the VAT scheme, you are now liable to make the quarterly payments which means you will pay after a duration of three months. Now the amount of VAT you have to pay to HMRC is calculated in a way that invoices on all the sales and purchases are considered and the VAT you will pay to HMRC. This will also be part of the calculation. This can be explained in a way that the VAT implemented on the purchased items can be deducted from the sales and the calculated balance will be paid to HMRC later.
What is the Standard VAT Cash Basis?
There is a way to make the calculation of VAT which is known as cash basis as well. This can be done without informing HMRC about the change. This is because of the fact that this scheme is not considered something separate from the standard VAT scheme. This is just known as an alternative method that can help to make the VAT calculations. The point is to be consistent on whatever method you choose for the calculations according to HMRC. In this method, you will have to consider the sales and purchases of the quarterly period.
What is a Flat Rate VAT Scheme?
As discussed earlier that getting registered for VAT means that you are automatically opting for the standard VAT scheme. This sometimes turns out to be the best suitable option for your business needs. However, this is not the case always. Because your business needs something more than the standard scheme at a certain point. Especially in the case of small businesses and contractors, a flat rate scheme is known to be the most beneficial and suitable. It helps to make the calculations and the relevant procedure easier to handle and lower the burden of the admin.
What is different about the flat rate scheme, you may be wondering? The rate of VAT in flat rate scheme is 20 percent like the standard rate scheme. However, there is a fixed percentage for a certain amount of sales. This will not be as time-consuming as other VAT schemes are. The flat rate scheme is known to be the most beneficial for the case of freelancers as well as contractors. This scheme can literally help to make more profit by several thousand pounds because of the lower rates.
Why Should You Opt for Voluntary VAT Registration?
There are several examples of businesses that will like to opt for voluntary VAT registration even before they hit the limit of the threshold or as soon as they set up their business. This is because of the range of benefits this can bring to the business. Reclaiming VAT on the expense, business credibility in the industry, an following the market norms are some prominent reasons for the voluntary registration of VAT for businesses.
The Bottom Line
Now that we have gathered a fair amount of information about VAT schemes UK, we can bring the discussion towards wrapping up. Choosing the right VAT scheme for your business can bring in a lot of benefits and increase profits rapidly. This should be taken into serious consideration before opting for the VAT scheme for your business.
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Disclaimer: All the information provided in this article on VAT schemes UK, including all the texts and graphics, in general. It does not intend to disregard any of the professional advice.