VAT - The Flat Rate Scheme (FRS) for small businesses

The FRS for VAT can be used by any business who is eligible to register for VAT and will have net turnover of £150,000 or less for the year ahead.

The FRS is aimed to be a very simple scheme to cut down on VAT administration for the smallest of businesses. However, this often means that the finer points of the scheme are missed by the businesses that use it. Below are two common mistakes which are often made.

When using the VAT FRS businesses do not usually recover input vat, but it can be claimed on some goods of a capital nature where there is a purchase and the gross amount is £2,000 or more. It must also be remembered that if any of these assets are sold in the future, they are outside the FRS scheme and therefore VAT on the sale must be charged at the full 20% and not the relevant flat rate percentage for that business.

The FRS includes sales which would be exempt under normal VAT accounting, a common example would be the sale of a car which would be exempt from VAT on its sale in most situations but under FRS it must be added to the flat rate turnover calculation.

VAT is never easy even in the simplest of situation, please contact us if you require any advice on the VAT implication of any of your business activities.