Question

Thomas has chosen to use the Normal Standard Scheme for VAT purposes, discuss the rules and conditions of the following other VAT schemes-

- Cash Accounting Scheme

-Annual Accounting Scheme

- Flat Rate VAT Scheme

Taxation (200 words)

Answer 1

Answer-:

1. Cash accounting scheme-:

The VAT cash accounting scheme is a useful tool for many small businesses, as you only repay VAT to HMRC once you have received payment yourself. If you have cashflow concerns, the scheme could be a lifesaver!
You can join the cash accounting scheme if your estimated turnover for the following tax year is not greater than £1.35m, and you can continue to use the scheme until your turnover is greater than £1.6m.

Benefits of the VAT Cash Accounting scheme
Under the standard VAT scheme, you must repay VAT on any invoices you have issued, whether or not you have received payment from the customers. Under the cash scheme, you only repay VAT once you have been paid yourself.

Under the standard VAT scheme, you can reclaim VAT on things you have purchased, even if you have yet to pay your supplier. Under the cash scheme, you can only reclaim for the VAT paid on purchases once you have paid your suppliers.

Can you use the Cash Accounting scheme?
Your business should be eligible to use the scheme if you meet the threshold requirement, unless your VAT affairs are not up-to-date, or you have been convicted of a VAT offence or have been penalised for evading VAT over the past 12 months.

In some cases, you must still use the standard scheme to account for VAT, such as when you import or export goods from/to the EU, or if you issue a VAT invoice in advance of providing services or goods.

You do not need to inform HMRC if you want to join the scheme. However, you must start at the beginning of a new VAT quarter (if you are already registered for VAT), or from the first day you become VAT registered.

You can also leave the scheme at the end of any VAT quarter, if necessary, or if your taxable turnover reaches the £1.6m mark.

2. Annual accounting scheme-:

The Annual Accounting VAT Scheme is a method of paying VAT whereby businesses make quarterly or monthly payments towards their annual VAT bill, but only submit one VAT Return per year.

To join the VAT Annual Accounting Scheme, you must be a VAT-registered business and have an estimated taxable turnover of under £1.35 million. VAT taxable turnover refers to the total of everything you sell that is not exempt from VAT.

You cannot join the scheme if you have left the scheme in the past 12 months, are not up to date with your VAT payments or VAT Returns, or if you are insolvent.

If you stop being eligible or reach a turnover of more than £1.6 million, you must leave the Annual Accounting VAT Scheme.

Under the VAT Annual Accounting Scheme, you must make payments towards your final VAT bill throughout the accounting year. You can choose between monthly and quarterly payments.

The amount you pay is calculated based on your last VAT Return or, if your business is new to VAT, is an estimated amount. If you pay monthly, payments are due at the end of months 4-12 and you must pay 10% of your estimated final VAT bill. If you pay quartely, payments are due at the end of months 4,7 and 10 and you must pay 25% of your final bill.

3. Flat rate VAT scheme-:

The Flat Rate VAT Scheme is a way of paying VAT whereby a business pays a fixed percentage of its annual turnover.

To join the VAT Flat Rate Scheme, your business must:

• Be VAT registered
• Have a predicted annual turnover of under £150,000 (excluding VAT).

Unlike other VAT accounting schemes, such as the Cash Accounting VAT Scheme businesses looking to use the VAT Flat Rate Scheme must apply to HMRC. It's also recommended that you speak to an accountant or professional tax consultant before joining the scheme to find out whether the scheme is right for your business.

Certain businesses cannot join the VAT Flat Rate Scheme, including those which:

• Left the scheme within the past 12 months
• Have committed a VAT offence within the past year, such as VAT evasion
• Are closely associated with another business – for example, two businesses which have close financial or organisational ties.

If you're no longer eligible to be part of the VAT Flat Rate Scheme, you're required to leave. Participants have the right to leave the scheme at any point.

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