Commentary

V7.230 Potential savings to be made by using the flat rate scheme

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.230 Potential savings to be made by using the flat rate scheme

Part V7 Tax planning | Commentary

V7.230 Potential savings to be made by using the flat rate scheme

HMRC is very keen to promote the time saving and administrative benefits of the flat rate scheme, rather than any potential tax savings for certain categories of business. However, the fact remains that the nature of the scheme and its calculations produce some winners and some losers. It is important to identify those clients who will benefit from using the scheme, and those clients who should avoid it at all costs because of the higher VAT bill they could encounter.

In some cases (and this is the point that would be stressed by HMRC) it may be beneficial for a business to still use the scheme, even if it produces a slightly higher tax bill. For example, if a business finds the record-keeping requirements of normal VAT accounting very onerous, it may be prepared to enjoy the simplicity of the flat rate scheme even if there is a financial cost in terms of extra VAT to pay. If a business has been submitting late returns and incurring default surcharge penalties due to record-keeping problems, then the flat rate scheme will prove a winner if it avoids future penalties.

Making use of the flat rate percentage for activities not listed elsewhere

One of the aims of the flat rate scheme is to ease the administrative burden for small businesses. As a result of this aim, HMRC sensibly limited the total number of different categories within the scheme to 55. After all,

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial