VAT: Which VAT accounting scheme do I choose?

By June 20, 2021Blog, VAT

Registering for VAT is a milestone for any business, whether you’re opting in to register, or whether your turnover has increased to over £85,000. 

It’s fairly straightforward to register for VAT – you can do so via the HMRC website and all you need is: 

  • National Insurance (NI) number or tax identifier.
  • Your business bank account details.
  • Details of other businesses you may have owned in the last two years.
  • Records of sale if you bought the business from someone else. 

Once you register, you can decide which VAT accounting scheme you’d like to use. Every business and business owner is different, so we’ve broken down your options below. 

Standard VAT Accounting 

Most businesses use this accounting scheme – hence its name! 

To put it simply, you record the VAT you’ve collected on each sale and the VAT paid on every business purchase and then submit a VAT return to HMRC and pay your VAT bill every quarter.

It’s as easy as that. 

But, if it does seem like an increase in tedious paperwork, a lot of digital accounting software now supports VAT and this can reduce the hours you spend calculating your taxes. 

Annual VAT Accounting.

Sometimes you can submit your VAT return annually, which may sound better than quarterly for some, right?

However, you’re still expected to pay quarterly and choosing annual VAT accounting means that your quarterly payments are based on your last return or an estimate, so it’s a little more complex than standard VAT accounting. 

Flat-rate scheme.

Specific industries and certain smaller businesses can opt to pay a flat rate of VAT – i.e. it’s not based on the VAT you’ve collected or paid, it’s a percentage of your turnover. 

The full details of the VAT flat rate scheme can be found on the UK government website. Each industry has a different flat rate.

Essentially, you calculate the tax you pay by multiplying the VAT flat rate of your industry by your VAT inclusive turnover. 

You may wish to speak to an accountant if you’re wondering whether this would be more efficient for your business. 

Cash accounting scheme. 

Cash basis accounting could work for some businesses. To put it simply, if you choose this option it’s assumed that you collected/paid VAT when money changed hands. In contrast to the other above options, where you’re assumed to have done so as soon as an invoice is raised.

Want some support on registering for VAT or submitting a VAT return? Get in touch with a member of our team today