April is here and with it comes the introduction of the new Flat Rate VAT Scheme introduced by HMRC to help simplify how small businesses calculate their VAT. The scheme is meant to be easier as it applies a fixed rate of VAT depending on the trade or profession of the company required to pay.
The new scheme does however come with restrictions on what can be reclaimed but aims to simplify the process, particularly for small businesses and those that typically have lower levels of capital expenditure.
Normally a business deducts the VAT on what it buys from the VAT charged on what they sell. Under the Flat Rate Scheme, that two stage process is simplified to one step. For example, the flat rate percentage for a clothes shop is 7.5% – so if the owner of that shop sells a dress for £120 including VAT of £20 he will pay a flat rate of £9 (£120 x 7.5%) to HMRC.
The confusion kicks in when it comes to which sales can be included when reclaiming VAT and what percentage rate is charged for each business type. The answers to both questions can be found on the HM Revenue and Customs (HMRC) website.
What’s not changed however is the pressure businesses, large and small, are under when trying to find the capital to pay the required levels of VAT. The new scheme will still mean registered companies must complete VAT returns with the frequency dependent on their accounting methods and the notifications sent to them by the HMRC.
If you are struggling to pay your VAT bill whether you are using the traditional system or the new Flat Rate VAT scheme, that’s where PFC may be able to lend a helping hand. Since 2015, short term VAT funding for SMEs has been growing steadily, and this year is responsible for nearly 40% of our volume of arranged business.
New and existing SME clients have started to benefit from being able to spread their VAT bills over 3 months; they no longer need to ring-fence essential capital in the business to make the payment. Our lending panel can arrange for the VAT payment to be made direct to the HMRC, or simply refunded into the clients’ bank account if they have already paid it.
With a panel of more than 45 regulated lenders PFC are able to provide businesses with a quick and effective route to finance where others may fail. Whether needing to pay staff on time or having the required cash flow for paying a VAT bill, let us help you get ahead and avoid paying any late penalties.
Contact a member of our team directly on: 01829 738 799.