HM Revenue & Customs have recently sent all VAT registered businesses ‘A SUMMARY GUIDE FOR VAT-REGISTERED BUSINESSES’ and tucked away in the third last paragraph it mentions the VAT Flat Rate Scheme and then “please refer to the additional information on the HMRC website”, which eventually leads you to their 44 page guidance!
On HMRC summary guide they concentrate on the standard rate of VAT reducing from 17.5% to 15% and taxable supply dates etc and not enough help on the VAT Flat Rate Scheme or on the cash accounting scheme, therefore we hope the following Q&As will be helpful and save you trawling your way through their 44 page guidance.
Section A – Flat Rate VAT changes
Section B – Cash Accounting and Flat Rate VAT
Section C – Using Flat Rate VAT and not on the Cash Accounting Scheme
Section A
What are the new Flat Rate Scheme percentages?
| New Flat Rate Scheme percentage rates |  | |
| | |
| | | |
| Category of business | New Per% | Old Per% |
| Accountancy or book-keeping | 11.5 | 13 |
| Advertising | 8.5 | 9.5 |
| Agricultural services | 7 | 7.5 |
| Any other activity not listed elsewhere | 9 | 10 |
| Architect, civil and structural engineer or surveyor | 11 | 12.5 |
| Boarding or care of animals | 9.5 | 10.5 |
| Business services that are not listed elsewhere | 9.5 | 11 |
| Catering services including restaurant and takeaways | 10.5 | 12 |
| Computer and IT consultancy or data processing | 11.5 | 13 |
| Computer repair services | 10 | 11 |
| Dealing in waste or scrap | 8.5 | 9.5 |
| Entertainment or journalism | 9.5 | 11 |
| Estate agency or property management services | 9.5 | 11 |
| Farming or agriculture that is not listed elsewhere | 5.5 | 6 |
| Film, radio, television or video production | 9.5 | 10.5 |
| Financial services | 10.5 | 11.5 |
| Forestry or fishing | 8 | 9 |
| General building or construction services* | 7.5 | 8.5 |
| Hairdressing or other beauty treatment services | 10.5 | 12 |
| Hiring or renting goods | 7.5 | 8.5 |
| Hotel or accommodation | 8.5 | 9.5 |
| Investigation or security | 9 | 10 |
| Labour-only building or construction services* | 11.5 | 13.5 |
| Laundry or dry-cleaning services | 9.5 | 11 |
| Lawyer or legal services | 12 | 13 |
| Library, archive, museum, or other cultural activity | 7.5 | 7.5 |
| Management consultancy | 11 | 12.5 |
| Manufacturing that is not listed elsewhere | 7.5 | 8.5 |
| Manufacturing fabricated metal products | 8.5 | 10 |
| Manufacturing food | 7 | 7.5 |
| Manufacturing yarn, textiles or clothing | 7.5 | 8.5 |
| Membership organisation | 5.5 | 5.5 |
| Mining or quarrying | 8 | 9 |
| Packaging | 7.5 | 8.5 |
| Photography | 8.5 | 9.5 |
| Post offices | 2 | 2 |
| Printing | 6.5 | 7.5 |
| Publishing | 8.5 | 9.5 |
| Pubs | 5.5 | 5.5 |
| Real estate activity not listed elsewhere | 11 | 12 |
| Repairing personal or household goods | 7.5 | 8.5 |
| Repairing vehicles | 6.5 | 7.5 |
| Retailing food, confectionary, tobacco, newspapers or children's clothing | 2 | 2 |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 6 | 7 |
| Retailing that is not listed elsewhere | 5.5 | 6 |
| Retailing vehicles or fuel | 5.5 | 7 |
| Secretarial services | 9.5 | 11 |
| Social work | 8 | 8.5 |
| Sport or recreation | 6 | 7 |
| Transport or storage, including couriers, freight, removals and taxis | 8 | 9 |
| Travel agency | 8 | 9 |
| Veterinary medicine | 8 | 9.5 |
| Wholesaling agricultural products | 5.5 | 6 |
| Wholesaling food | 5 | 5.5 |
| Wholesaling that is not listed elsewhere | 6 | 7 |
| | | |
| | |
| *Labour-only building or construction services" means building or construction services where the value of materials supplied is less that 10 per cent of relevant turnover from such services; any other building or construction services are "general building or construction services". | | |
From what date should I use my new percentage?
You should use the new Flat Rate Scheme percentage from 1 December 2008.
I’m newly registered for VAT do I still get a 1% discount for the first year of registration?
Yes. You will continue to receive a 1% discount off the new percentage rate.
Is it possible I could end up using three Flat Rates for the VAT quarter straddling 1 Dec 08?
Yes, but only when you are in the 1% discount period and it comes to an end, in that quarter.
For Example using Computer and IT consultancy or data processing
Sales invoices raised with a VAT rate of 17.5% you would apply the Flat Rate at 12%.
Sales invoices raised with a VAT rate of 15% you would apply the Flat Rate at 10.5%,
Sales invoices raised with 15% you would apply the Flat Rate at 11.5%, after the discount period has ended.
Section B
VAT Cash Accounting Scheme - is there anything I should be aware of?
Yes.
With cash accounting you pay VAT when you receive payments, therefore if you raised a sales invoice on 28th November 08 and you receive payment after 30th November 08, then you would use the old percentage as the sales invoice was raised in November 08 with VAT rate of 17.5% on the sales invoice.
However, if an invoice was raised in December 08 with a VAT rate of 15% you would apply the new rate.
If you’ve charged a VAT inclusive price, the VAT fraction to work out the VAT element is
15% = 3/23
17.5% = 7/47
Section C
I don’t use the Cash Accounting Scheme, is there anything I should be aware
of?
If Invoices are raised with a VAT rate of 17.5% you will need to apply the old percentage and any invoices raised with a VAT rate of 15% you will apply the new percentage.
What happens if I make a mistake applying the new rules?
If you discover that you have made an error, it should be corrected in the following VAT return.
HMR&C have stated that they will be operating a ‘light touch’ in terms of errors made in the first VAT return after the change.
We trust the above has been useful but if you require any further help or guidance please contact us on
Phone 0141 225 6400
Fax 0141 225 6401
E-mail enquiries@grantsca.co.uk
