FIND OUT MORE
The government website has pages of information and detailed VAT guides
for download: www.gov.uk/vat-registration.
England has a network of Growth Hubs, which offer businesses advice
and support: www.lepnetwork.net/growth-hubs. In Scotland, Business
Gateways do the same www.bgateway.com. Business Wales also offers
support: www.businesswales.gov.wales/starting-up. And in Ireland there is
NIBusinesInfo: www.nibusinessinfo.co.uk/start
Flat Rate Scheme
T
en years later Terry Marsh convinced
me that registering for VAT could be
beneficial and that it was relatively
simple using the Flat Rate Scheme. This
scheme aims to offer some of the benefits
of being VAT registered but with less
bookkeeping. It sounds more complicated
than it actually is, so bear with me.
With the Flat Rate Scheme you add
standard VAT to your invoices and pay
a fixed (and lower) percentage of that
sales income to HMRC. The percentage
varies with type of business (from about
9% to 14.5%) and is currently 11% for
Photography and Publishing and 12.5% for
Entertainment & Journalism. The greater
the difference between the Flat Rate you
pay and the standard VAT rate the more
money you keep. With luck, this is more
than the VAT you’ve paid on purchases.
You don’t have to account for VAT on
purchases nor obtain receipts showing
the VAT breakdown (although, you can
reclaim the VAT on certain capital assets
over £2,000).
In 2017 HMRC introduced a new 16.5%
VAT flat rate for businesses with limited
costs. This applies if your VAT inclusive
expenditure on goods is either less than
2% of your VAT inclusive turnover or less
than £1000 per annum.
Registering and returns
N
ote that if you are in the enviable
position of earning more than
£85,000 per year it is compulsory
to register for VAT. Needless to say, my
income has never approach that level.
Once registered you must show the VAT
amount on all your sales invoices (even
when the items are zero rated) and keep
VAT records that (I hope theoretically)
could be inspected at any time. You have
to continue VAT accounting until you
deregister.
After registering for VAT in 2008, I
began completing quarterly VAT returns.
These returns have boxes to account for
VAT ‘deductible’ (tax claimed back on
purchases, also known as ‘inputs’) and
Some months
the balance
between VAT
deductible and
payable meant
that I received
money into my
bank account...
VAT ‘payable’ (tax collected via sales, i.e.
‘outputs’). While on the Flat Rate Scheme,
I only needed to fill in the half of the
return that reported my sales and the VAT
on those outputs.
The exception was my first return
because you can reclaim the VAT you’ve
paid on certain purchases made before
you registered (a worthwhile bonus for
me of nearly £1000 VAT that I’d paid on
camera and computer gear). Currently you
can claim for purchases in the previous
four years for goods you still have and six
months back for services. So it could be
worth obtaining and keeping VAT invoices
and receipts of business purchases, even if
you’re not currently registered.
When I began publishing books and
doing less writing for business customers
I realised that, because book sales are
zero rated, I would be collecting less VAT
than before. This made it attractive to
change to full VAT accounting, because
on the Flat Rate I would no longer receive
back enough VAT to cover what I paid
on purchases. I bit the bullet, revised my
registration and added the extra columns
to my spreadsheet to feed into my returns.
I must admit that calculating and
submitting quarterly VAT returns
manually was an extra task that I could
have done without. Some months the
balance between VAT deductible and
payable meant that I received money into
my bank account, other months it went
out via Direct Debit. Either way I was
‘making’ money from the system, because
I was getting my VAT on purchases back,
whilst the sales tax I passed on to HMRC
came almost entirely from other VAT
registered businesses and was on top of
my agreed fee. The habit developed of
celebrating the filing of my VAT return
with a large gin and tonic.
Digital developments
I
n 2010 the government was beginning
its push towards digital services and I
succumbed to HMRC’s encouragement,
to “Beat the rush and make the switch
to filing your VAT Return online”. I set
up an online government account and
submitted my figures via it. The only
spring 2020 | Outdoor focus 15