Leaving the VAT Flat Rate Scheme

Updated on July 20, 2022

The VAT Flat rate scheme is a simplified scheme for smaller businesses.

It is possible for VAT-registered traders to pay HMRC a fixed percentage of their total VAT-inclusive turnover instead of a discrepancy between what they charge their customers and what they actually pay. The flat rate percentage is determined by the trader’s business sector. The flat rate % includes an allowance for input VAT, with the exception of some capital assets costing more than £2,000 for which the trader can claim VAT back.

Joining the scheme

Only small businesses with a turnover of less than £150,000 are eligible to join the flat rate scheme.

Leaving the scheme

Once in the flat rate scheme, a trader must leave it if:

they lose their eligibility to participate in the program; on the anniversary of their enrollment, their turnover (including VAT) was or will be more than $230,000; their anticipated turnover in the next 30 days will be or will be more than $230,000 (including VAT); they become a tour operator and must account for VAT using the Tour Operator’s Margin Scheme; the trader plans to purchase capital goods covered by the Capital Goods Scheme; the trader gains eligibility to participate in the scheme.

A trader’s decision whether or not to participate in the program is their own.

Traders cannot rejoin the plan for at least a year after leaving it.

It the scheme still worthwhile?

There is a fixed rate of 16.5 percent of VAT-inclusive turnover for enterprises with low overhead costs. 19.8% of VAT-exclusive turnover suggests that nearly all the VAT charged to customers is paid to HMRC, with very little headroom for input VAT.

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To qualify as limited cost, a company’s relevant goods must cost less than two percent of its total revenue.

All servicing and gasoline are not included in the list of items that are significant. Due to the fact that non-relevant items are frequently purchased, a company may not be able to recoup all of its input VAT. Using standard VAT accounting and opting out of the flat rate scheme may be the best option for this trader.

How to leave

To withdraw from the Flat Rate Scheme, traders should send a letter to HMRC at the address listed below:

HM Revenue & Customs BX9 1WR BT VAT

Although traders can depart at any moment, HMRC usually expects them to do so at the end of a VAT accounting period. The departure date will be confirmed in writing by HMRC.

Once a trader has exited the plan, they cannot use the flat rate percentages to account for VAT.

Further queries

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