Andrew Needham looks at some of the pros and cons for small businesses of being on the flat rate scheme.
The VAT flat rate scheme (FRS) simplifies accounting for small businesses by paying a fixed percentage of turnover to HMRC, rather than calculating VAT on individual purchases and sales.
Tips and traps
Key tips include maximising the 1% new business discount for the first 12 months on the FRS and claiming VAT on single capital assets over £2,000.
A major trap is the ‘limited cost trader’ rate (16.5%), which applies if spending on goods is under 2% of turnover, potentially erasing all tax benefits. A business should review its purchase of relevant goods quarterly to ensure it is less than 2% of turnover and more than £1,000 per year to avoid
