The Flat Rate VAT Scheme (FRVS) is a simplified VAT scheme designed for small businesses in the UK. Rather than reclaiming VAT on their business expenses, businesses under the FRVS pay a fixed percentage of their turnover to HM Revenue and Customs (HMRC).
To be eligible for the FRVS, a business must have a taxable turnover of £150,000 or less and must apply to HMRC. The flat rate percentage varies depending on the type of business, with retailers paying a flat rate percentage of 12% and professional services businesses paying a flat rate percentage of 16%.
There are several advantages to the FRVS, such as reduced compliance costs, improved cash flow, and a reduced risk of errors. However, there are also some drawbacks, such as potentially paying more VAT than under the standard VAT scheme, being unable to reclaim all VAT paid on business expenses, and potentially being less competitive than non-FRVS businesses.
When considering whether to join the FRVS, small business owners should evaluate the benefits and drawbacks of the scheme and consider their business type, turnover, compliance costs, cash flow, and risk of errors. Ultimately, the decision to join the FRVS should be made after careful consideration of these factors.
The flat rate scheme is not advisable for all businesses. It is best to consult the VAT section of the HMRC website or speak to an accountant:
http://www.hmrc.gov.uk/VAT/start/schemes/flat-rate.htm