VAT schemes for small businesses.

Flat Rate Scheme.

You pay VAT to HMRC using a fixed percentage for your trade sector instead of calculating output VAT and input VAT in the usual way. The scheme is open to businesses with expected VAT taxable turnover of £150,000 or less, excluding VAT.

A limited cost business uses the 16.5% rate. Check the cost-of-goods test for each VAT period where your costs sit close to the limit.

Cash Accounting Scheme.

You account for output VAT when customers pay you and reclaim input VAT when you pay suppliers. You can join if your expected taxable turnover is £1.35 million or less.

Late-paying customers can make this scheme useful for cash flow. You still need complete records and must check the scheme’s exclusions.

Annual Accounting Scheme.

You submit one VAT Return each year and make advance payments based on your previous return or an estimate if you are new to VAT. The scheme is available where expected taxable turnover is £1.35 million or less.

It can reduce the number of returns you prepare, but you still need timely bookkeeping throughout the year.

Compare the cash and admin effect.

Ask how quickly customers pay, whether you make large VATable purchases, how much input VAT you usually reclaim and whether your records can support the required calculations.

Do not choose a scheme from the headline rate alone. A lower administration burden can come with a less helpful cash-flow result.

Related guides.

Check rates, thresholds and deadlines for the correct tax year before you rely on them.