Did you know there isn’t just one VAT scheme in the UK, there are actually many schemes and options.
Choosing the right VAT scheme for your business means you could pay less VAT, improve your cash flow and even your profit.
Some VAT schemes are open to only certain types of business but some are open to most businesses. This is important because picking the right scheme can mean paying thousands of pounds less VAT each year and, or improving your cash flow.
The most commonly used scheme is the VAT accruals scheme. This means you pay over VAT on your sales but deduct VAT on purchases. This can work well in the early days of a business where you often reclaim VAT from HMRC. But as your sales grow you can find yourself paying over VAT on your sales before your customers pay you, which drains cash from your business. If this sounds like your business you may be better off moving to a scheme where you only pay over the VAT on sales after your customers have paid you. The effect is often a boost of thousands of pounds to your bank account.
Smaller companies can benefit from this cash flow effect too but they can also move to a VAT scheme which means they actually pay less VAT in total. The Flat Rate Scheme means a business can’t reclaim VAT on most purchases, but instead keeps some of the VAT it has collected on its sales. This can increase the profit and cash flow by as much as 5-7 % of the total sales figure.
Switching schemes isn’t difficult but there are rules and regulations for each one. You will also need to do some analysis before deciding whether a particular scheme works better for you. But if you are looking for extra cash and possibly extra profit it’s definitely worth looking at your VAT scheme and talking to an accountant about how you could improve your cash flow position or simply pay less VAT.
Follow us on Twitter @ShaperAccounts
Or get in touch at firstname.lastname@example.org to talk VAT