5 ways to pay less VAT

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Many small businesses assume there is only one type of VAT scheme, the standard VAT scheme where you pay VAT on Sales and reclaim VAT on Purchases but in fact there are several schemes and they could save you money:

Cash Accounting

Using the Cash Accounting Scheme, you:

  • pay VAT on your sales when your customers pay you
  • reclaim VAT on your purchases when you have paid your suppliers

You can use the Cash Accounting Scheme if your estimated VAT taxable turnover during the next tax year is not more than Β£1.35 million.

Cash Accounting can improve your cashflow if your customers pay later than you need to pay your suppliers.

Flat Rate Scheme

You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:

  • your estimated VAT taxable turnover – excluding VAT – in the next year will be Β£150,000 or less.

Generally you don’t reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than Β£2,000

There’s a one per cent reduction in the flat rate percentages for your first year of VAT registration.

You can get a list of Flat Rates by following this Link

Flat Rate is easy to use and can save you money if you have a lower than average level of VAT purchases.

Annual Accounting Scheme

Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount. If you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than Β£1.35 million.

This could save you money by saving time.

Retail Schemes

Using standard VAT accounting, if you are VAT-registered then you must record the VAT on each sale in your accounting records. But with the VAT retail schemes, you work out the value of your total VAT taxable sales for a period – for example, a day – and the proportions of that total that are taxable at different rates of VAT (standard, reduced and zero) according to the scheme you are using. You then apply the appropriate VAT fraction to that sales figure to calculate your VAT due.

You do not need to record VAT separately in your accounts for each and every retail sale you make. This is particularly beneficial if you make a number of low value and/or small quantity sales to the general public. This can save you a lot of time and record keeping.

Margin Schemes

Normally you charge VAT on your sales, and reclaim VAT on your purchases. However, if you sell second-hand goods, works of art, antiques or collectibles, there may have been no VAT for you to reclaim when you bought them. You may be able to use a VAT margin scheme. This enables you to account for VAT only on the difference between the price you paid for an item and the price at which you sell it – your margin. You won’t pay any VAT if you don’t make a profit on a deal. You can still use standard VAT accounting for other sales and purchases such as overheads.


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