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What you need to know about the VAT Flat Rate Scheme – “FRS”

The amount of VAT a business pays or claims backs from HM Revenue and Customs (HMRC) is usually the difference between VAT charged by the business to customers and the VAT the business pays on their own purchases.

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What you need to know about the VAT Flat Rate Scheme – “FRS”

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  1. What you need to know about the VAT Flat Rate Scheme – “FRS”

  2. 2 The amount of VAT a business pays or claims backs from HM Revenue and Customs (HMRC) is usually the difference between VAT charged by the business to customers and the VAT the business pays on their own purchases. FRS is an incentive provided by the Government to help simplify taxes and is recommended to help most small businesses. Using FRS your company will still charge VAT on your invoices at 20% but only pay VAT over to HM Revenue and Customs at a lower rate depending on your business category. But you get to keep the difference between what you charge your customers and pay to HMRC. To join the VAT Flat Rate Scheme, you just apply to HMRC. Key points about the Flat Rate Scheme are: • You pay a fixed rate of VAT to HMRC • You keep the difference between what you charge your customers and pay to HMRC • You can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000 • To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

  3. 3 During your first year as a VAT registered business you reduce the VAT flat rate by 1%. The reduced rate lasts until the day before your registration anniversary. Some example VAT Flat Rates include: • Advertising 11% • Architect, civil and structural engineer or surveyor 14.5% • Computer and IT consultancy or data processing 14.5% • Transport including couriers and freight 10 % And this is an example of how it works: To learn whether the Flat Rate Scheme is right for you, contact us

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