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VAT Systems
VAT
Registration for VAT becomes compulsory when a company turnover exceeds £68,000 (from April 2009). Nasa Consulting will advise on the best options from the VAT Schemes below according to your accountancy requirements. We can also register, and on an ongoing basis, administer a company’s VAT accounting needs.
From the 1st January 2010, the rate for VAT returns to the standard 17.5%.
There are three main VAT schemes which are:
- Cash accounting
- Standard rate VAT
- Flat rate VAT
Cash Accounting
Under the cash accounting scheme, VAT is only accounted for and paid to HMRC when money is received from a customer. The scheme means that if the company is not paid by its customers, VAT doesn’t need to be paid. Although scheme users can’t reclaim VAT on purchases until they pay their suppliers. Unless the company has a customer with extremely lengthy payment terms we would not recommend this VAT scheme to our clients.
Standard Rate VAT Scheme
Under the standard rate VAT scheme VAT is paid back on the sales charged through the company less the VAT which has been paid on business expenses. This scheme means more administration but if the company will have a high level of business expenses which attract VAT, this may be the better option for the business.
Flat Rate VAT Scheme
The flat rate VAT scheme requires a lot less administration. Instead of calculating VAT on expenses and offsetting against VAT on the company’s sales, a percentage of the gross sales is paid back.
For IT contracting the percentage flat rate is generally 13%, with a further 1% reduction for your first year of VAT registration. This means that the company pays back just 12% of the gross sales for the first year. An example of this is that if the company invoices a client for £100,000 of fees and £17,500 of VAT, only 12% of this total or £14,100 is paid over to HMRC. This nets the company extra VAT income of £3,400 in the year.
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