The VAT Flat Rate Scheme is changing right now – is your business ready?31/05/2022
As of 1 June 2022, the VAT Flat Rate Scheme is changing. If you run a business to which this scheme applies, importing goods and using postponed VAT accounting, then it’s vital that you get on top of these changes now. Below, we’ll give you a quick run down of everything you need to know:
What is the VAT Flat Rate Scheme, and how does it work?
The difference between the VAT a business charges customers and the VAT a business pays on its own purchases is generally the amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC).
The Flat Rate Scheme entails the following: You pay HMRC a predetermined rate of VAT and retain the difference between what you charge your clients and what you pay to HMRC. You can’t recover VAT on your purchases until they’re over £2,000 in value.
However, if you’re utilising the Flat Rate Scheme after 1 June 2022, and need to account for import VAT on your VAT return, you must add the value of the imported products to the total of all your supplies before doing the scheme calculation for return periods beginning before that date.
You should not include import VAT accounted for utilising postponed VAT accounting in your flat rate turnover for return periods beginning on or after June 1, 2022. After you’ve finished your flat rate scheme calculation, add the VAT owed on any imports to box 1 of the return.
VAT Notice 700/12, section 4.1, has extra information on calculating the VAT owing on sales.
There will be no penalties for errors, according to HMRC, if you take reasonable care to follow the instructions. However, it is always easier and safer to get things right from day one. If you need help understanding the implications of these changes for your business, call JW Hinks on 0121 456 0190.