The Flat Rate Scheme for Value Added Tax

The current VAT rate for most goods and services is 20%, which is historically a high rate. The VAT rate started at 8% back in 1972, but since then it has crept upwards. At 20% it is quite likely to be the case for many businesses that HM Revenue & Customs are making more profit from your business than you are!

The VAT threshold is £83,000 at the time of writing (August 2016). That means that a business with a turnover of £82,000 does not have to charge VAT, but a business with a turnover of £84,000 presumably has to raise its prices by 20%. In some industries this does not matter much, because all the customers of the business are VAT-registered themselves and are therefore VAT-indifferent because they can reclaim the VAT as input tax. However, in other industries there is a risk that customers who cannot reclaim the VAT will just see this as a 20% price rise and they will go elsewhere. This is a significant distortion of competition.

What we would like to see, for the want of anything better, is an intermediate VAT regime with a rate round about the 10% mark so that there is some relief on the distortion of competition issue. What we have is the Flat Rate Scheme, and we are therefore keen on advising you if we think you would do better to adopt it. If we do your VAT returns, we are happy to monitor your average VAT rate and will let you know.