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What are the different types of VAT scheme?

There are three main types of VAT schemes.

  • The VAT flat rate scheme is only eligible for businesses with less than £150,000 turnover. It’s designed to make record keeping more simple by allowing you to apply a fixed-rate percentage to turnover, depending on your industry.
  • The VAT cash accounting scheme is for companies with a turnover of less than £1.35m. You only have to pay VAT on your sales once you’ve received payment from your customers. This is useful if you want to avoid cashflow issues as you don’t have to pay VAT back to HMRC before you’ve received the money from your clients.
  • There’s also the annual accounting scheme which has your business submitting one annual return rather than doing VAT returns quarterly. You need to make advanced payments based on estimated amounts from your previous year’s returns. If your business is relatively stable, it makes sense in some cases to pursue this method.

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