9:57am Monday 16th August 2010
AS announced in the recent Budget, the rate of VAT will be increasing to 20 per cent from January 4 next year.
There are, however, possible steps that a VAT-registered business can take to mitigate the impact, or lessen the burden, of administrating VAT.
* Flat rate scheme
This scheme was introduced to assist small businesses in administering their VAT affairs. Businesses pay HM Revenue and Customs a percentage of their gross sales, determined by the industry they are in, but they cannot recover VAT on purchases made, except larger capital items.
This scheme makes calculations very simple, and, in some instances, using this scheme can prove very cost effective.
* Cash accounting
Available to small businesses, this scheme allows a business to only account for VAT when a sales/purchase invoice has been paid.
The benefit here is the cash flow advantage, especially in the current economic climate where cash is tight, it also means bad debt relief for VAT is automatic.
* VAT schemes for retailers
Schemes can be available for businesses that sell to the general public and predominately sell high volume inexpensive goods, where it is time-consuming to calculate the VAT.
There are standard schemes to use and also, depending on your business, bespoke schemes to suit your business.
* Annual accounting scheme
With this scheme, you only have to complete one VAT return per year, saving time preparing the usual four. Under this method, you have to make payments throughout the year with the balancing
payment, once the annual return is submitted.
The user of the scheme, therefore, needs to be disciplined and organised.
* Margin scheme
For businesses who buy secondhand goods, the margin scheme is available where you only pay VAT on the profit you make on the sale.
* Group VAT registration
Groups of companies or companies under common control may have one VAT registration and, therefore, one VAT return per period.
This can reduce administration, but also means supplies between the companies are ignored for VAT purposes.
The Government has also introduced new procedures to improve their internal processing of VAT, so by now all VAT registered business with a turnover of £100,000, or those who have registered for VAT after April 1 this year, should submit their VAT returns online.
LB Group is a firm of chartered accountants, business advisers and chartered tax advisers with offices in Chelmsford, Colchester, Ipswich and London. For a no obligation consultation, please e-mail stuart.sheldrick@lbgroupltd.com or call 01245 254780.
This article is designed for the information of the reader and while every effort is made to ensure accuracy, information contained in this article may not be comprehensive and recipients should not act upon it without seeking professional advice.
LB Group is registered to carry out audit work by the Institute of Chartered Accountants in England and Wales.
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