The Flat Rate Scheme for VAT has been designed for small businesses to reduce the admin burden.
To partake in the Flat Rate Scheme, you must meet certain criteria:
You have to leave the scheme if you no longer meet the criteria as listed above. If your turnover has exceeded £230,000 (including VAT) on the anniversary date of joining the scheme, or if you expect it to exceed that amount in the next 12 months.
When you register for VAT, and you choose to join the Flat Rate Scheme, you will be asked to choose your business type. This will give you the rate to apply. You can find out the most common rates on the HMRC website.
You charge your customers VAT at 20% as usual. However you do not claim the VAT back on your expenses. When you come to file your VAT Return, the amount of VAT you pay to HMRC will be calculated as a percentage of your gross sales.
For example, if you have sales of £10,000 + VAT in your VAT period:
£10,000 + £2,000 = £12,000
Flat Rate Scheme percentage of 12% (the percentage for most Business Services businesses):
£12,000 x 12% = £1,440.
Therefore you would pay £1,440 to HMRC for your VAT liability.