Each VAT scheme has its advantages and disadvantages. We’ve summarised them here.
Standard VAT (Accrual)
✅ – Claim back VAT on purchases before you pay for them.
❌ – Pay VAT on your sales before your customers have paid you.
Standard VAT (Cash)
✅ – Pay VAT to the HMRC only once your customer has paid you.
❌ – Can’t claim back VAT on purchases until you’ve paid for them.
Flat Rate scheme
✅ – Record keeping is simpler & There is a 1% discount on your industry percentage if you register for flat rate VAT in your first year of VAT registration.
❌ – Can’t claim back VAT on expenses unless they are of a capital nature over £2,000 plus VAT.
Annual accounting scheme
✅ – Regular monthly payments on account.
❌ – No incentive to maintain good up to date records, so you may not know whether your business is making a profit or not before it’s too late.
Retail and margin schemes
✅ – Simplified VAT reporting & if you sell an item for less than you paid for it, you will not have any VAT to account for on the sale.
❌. – Restrictions on goods available to sell under this scheme.