5 Useful VAT Schemes for SMEs

Updated on July 19, 2022

Thinking about joining a VAT scheme? Check if you’re eligible.

1. VAT Annual Accounting Scheme

Businesses who are VAT-registered typically submit their VAT returns and payments to HMRC four times per year.

They just have to do it once a year now, thanks to the VAT Annual Accounting Scheme.

In order to simplify administration for small firms, the single yearly return was created.

Based on your company’s VAT return (or an estimate if you haven’t filed one before) in the preceding year, payments are made throughout the year. In the end, you either pay or get repaid the difference between your actual VAT and the advance amount that you paid for your tax return.

A VAT-registered business with an annual VAT-taxable turnover of less than £1.35 million is eligible for the program.

If you’re insolvent, haven’t paid or returned VAT in the last year, or are part of a VAT-registered division or group of firms, you won’t be able to participate in the plan.

2. VAT Cash Accounting Scheme

It is possible to pay VAT on sales and then claim it back on your inventory under this plan.

It’s a departure from the customary practice of reporting data and paying taxes even if invoices haven’t been settled.

Businesses must be VAT-registered and have an annual VAT-taxable revenue of no more than £1.35 million in order to qualify.

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It’s not allowed if you’re utilizing the VAT Flat Rate Scheme, if you haven’t filed your VAT returns in a year, or if you’ve been convicted of a VAT-related offense in the last year.

You don’t have to notify HM Revenue and Customs whether you’re eligible to join at the beginning of the VAT accounting period.

3. VAT Margin Scheme

Sellers of antiques, second-hand items, works of art, and other collectors’ goods use the VAT Margin Scheme.

On the difference between the cost of a product at retail and its final selling price, a tax is imposed (as opposed to taxing the full selling price).

You can engage in this program to keep track of that and register your permitted products.

It’s an excellent idea to keep track of things like receipts and inventory.

A new rule in the Netherlands exempts expenditures in gold and diamonds from VAT.

Even horse auctions are subject to the same rules and regulations that govern the used vehicle industry.

4. Capital Goods Scheme

The Capital Goods Scheme can be used to obtain VAT exemptions or rebates for assets such as land, property, and equipment that were purchased for resale but have instead been put to other uses. In either case, it’s possible that this was done on purpose.
First-year VAT claims on assets can now be spread out across multiple years. When purchasing a company asset, VAT might be recouped to the fullest extent possible. Purchases made for both business and personal usage are eligible for partial VAT refunds. A “partial exemption” is what we call this situation.

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5. VAT Retail Schemes

Only enterprises who conduct retail sales and have an annual VAT-exclusive turnover of less than £130 million are eligible to use the VAT Retail Schemes. Non-retail businesses can also benefit from the programs, but only if they make a significant portion of their revenue from retail sales (they must account for their non-retail sales in the regular way). Different firms utilize one of three standard VAT retail schemes:

Businesses that calculate and record VAT at the point of sale are eligible for the Point of Sale Scheme.
For businesses who acquire items to resell, there is an allocation scheme that they can use.
If a business is only selling at one particular VAT rate, but is selling most of its goods and services at a different rate, then the Direct Calculation Scheme may be the best option for them.

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