Under the standard rate VAT scheme, you need to sum up the VAT you've charged to your clients, and deduct the VAT you've paid on goods and services purchased.
You'll pay the difference between the VAT you charge to your clients, and the VAT you pay on your purchases. This calls for rigorous record keeping, as you need to keep track of all transactions and the rate of VAT charged. With the flat rate VAT scheme, the process is simplified.
Rather than pay out the difference between the VAT you've charged to your clients and the VAT on your purchases, you'll pay HMRC a fixed rate of VAT.
The scheme is rolled out for small businesses that don't have a large turnover, thereby saving them from the hassle of tracking VAT on purchases.
To be eligible for the scheme, businesses need to have an annual turnover of £150,000 or less (excluding VAT). The amount of VAT payable under the flat rate VAT scheme depends on the industry you operate in.
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