This depends, if your turnover is over the VAT Registration Limit, then you must.
If you are under the threshold, this is dependent on who your customers are and what you do. It may be you are better to be VAT Registered if your customers are also VAT Registered, that will make savings for you on overheads and materials.
If you have mainly domestic customers, this may put you at a competitive disadvantage and it may be better to absorb the higher material costs.
It can come down to a personal choice, but you need to discuss the situation, so you know all the options.
Until we prepare your VAT Return, we do not know. Two identical looking businesses trading with different profit margins and types of goods sold, can have greatly differing VAT payments.
We always treat every business individually and never make assumptions about what is best VAT Retail Scheme until we have done the work. The answer varies to a great degree.
We even run checks on sales recorded by EPOS systems as we have seen many problems with these. Any programming error cannot be seen until HMRC start to look at why the margins do not look credible.
There are three outcomes here:
- This is correct and the results are credible …. A great outcome.
- The VAT bills are too high…… A bad outcome.
There are cases where businesses can be due refunds for every VAT Return. If this is due to errors, you can correct up to 4 years, but not change the Retail Scheme used. If the difference is because an inappropriate VAT Retail Scheme has been used for calculations, the potential saving cannot be reclaimed. However, the better Retail Scheme can be used to make savings in future.
- The VAT bills are too low ……This is the worst outcome and can be a disaster.
The chances are the money has not been saved, why would it be. HMRC have a routine VAT inspection and discover the VAT Returns should be higher by £1,000 per 3-month period. They can go back 4 years, that is £16,000 of VAT to repay before interest and penalties of anywhere between 20% to 100%. At best, this will be a £20,000 assessment, which will need to be funded by borrowing, re-mortgaging, or worse. What would your bank do if they felt the business was already weak?
We run constantly monitor to ensure answer 1 above is where your VAT payments come out. If they do not, we will ask questions until we find the reason why, so we do not end up with either answer 2 or 3 above. Realism about the level of VAT payments is essential.
It seems odd but unless you run the checks as we do, you will never know if:
- an apparently low VAT payment is too high, or
- an apparently high VAT payment is too low.
YOU CAN NEVER JUDGE THE VALIDITY OF VAT PAYMENTS BY COMPARING WITH ANOTHER BUSINESS
Assuming the turnover limits for entry to the scheme are not breached, this suitability of the Flat Rate Scheme depends on the trading style and figures for an individual business.
If you have a lot of VAT on expenses to reclaim, e, g., you pay VAT on Rent, this could mean it is not worthwhile. If you have low VAT Input Tax to reclaim it may be the Flat Rate Scheme will work for you.
This decision must also consider selling assets used in the business. If selling a car, you could not reclaim VAT on when bought, you may end up paying VAT on the car when sold if it has been used in the business.
Also, if you import there are dangers with the Flat Rate Scheme.
Again, each case needs to be looked at on its own merits.
Your Accounts² have built a strong reputation for our VAT services, especially within the grocery, retail and restaurant sectors. We aim to save you time, stress and money, all at a competitive price. We’re so confident in our services that if your business is chosen for a random HMRC VAT inspection, we’ll attend your premises at no extra charge!
