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Flat Rate and Retail VAT Scheme


Flat Rate VAT Schemes

The flat rate scheme using a standard reduced percentage to calculate the VAT payable by a business.

Instead of using the standard rate of 20% calculation on net sales and on purchases, any valued added tax on items which are bought by the business are ignored.

Only the sales figure is used to determine that VAT is due and a flat rate (other than 20%) is applied to net turnover.

The actual flat rate used is determined by which sector of industry the business is primarily engaged in.

Revenue and Customs have worked out various rates for a specific area of business which they believe provides the most appropriate percentage.

The following is an example for the jewellery industry where a scheme with a flat rate of 6 percent currently operates.

Net sales for the quarter £100,000
VAT on sales at 20 percent £20,000

Net Purchases for the quarter £40,000
VAT on purchases at 20 percent £8,000

Under the normal rules of valued added tax, the sum of £12,000 (£20,000 less £8,000) would be payable relating to that quarter’s activity.

With the flat rate scheme the VAT calculation would be £120,000 multiplied by 6 percent to give £7,200 due to HMRC.

In applying the rules of the scheme, the £8,000 incurred in the purchase of jewellery is ignored.

Retail VAT Schemes

Retail VAT schemes generally do not alter the processes by which valued added tax is calculated, they merely affect the documentation with has to be supplied at the time of a sale.

A common example is the purchase of confectionery from a newsagent where VAT receipts are rarely supplied.

The concessions offered under the retail scheme allow them to provide simplified invoices to their customers, and unless one is specifically requested, there is no requirement to produce an itemised receipt compliant to the normal rules which are applicable VAT documentation.

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