Instead of paying the difference between vat on sales and vat on purchases businesses that have adopted a flat rate scheme pay vat at a percentage of sales in line with the average for that trade sector. Vat is not reclaimable on purchases. The Customs & Excise website contains details of the percentages for each sector.
Customers are charged vat at the normal vat rate, 17.5% if standard rated goods. The actual vat payable is then calculated at the appropriate percentage of the total sales figure including vat. An adjustment to the accounts would then be required to adjust for the difference between the vat paid and the amount payable if an inputs and outputs basis had been used. DIY Accounting software automates this flat rate calculation by automatically calculating the vat on sales at the flat rate and expensing the vat input to the purchase accounts.
Businesses in their first year of vat registration also receive a 1% reduction in the flat rate for their trade sector.
Annual Vat Accounting Scheme
Not suitable if you receive repayments of vat, the annual accounting scheme is based upon an annual estimate of the vat bill which is then paid in monthly or quarterly instalments throughout the year with the balance payable or received at the end of the year when the annual vat return has been submitted.
The vat threshold for this scheme is businesses with a sales turnover not expected to exceed ?$1.25m.
The main benefit of the annual accounting scheme is to smooth the vat payments over the year.
Vat Cash Accounting Scheme
Under the vat cash accounting scheme the vat return and liability to pay vat is based upon the date sales were received and the date purchases were paid rather than the invoice tax points.
The vat threshold for the cash accounting scheme is businesses with a sales turnover excluding vat of under ?$1.35m.which can be extended for existing users to a turnover of ?$1.6m and left in place for up to 6 months after the vat threshold has been breached.
Accounting for vat using the Cash Accounting Scheme may require businesses to record sales and purchases on cash received and paid basis and adjust accounting records for accruals. Alternatively, sales and purchases can be entered into the Accounting records based upon the invoice tax points and a quarterly adjustment made for debtors and creditors at the beginning and end of each quarter. Such accounting adjustments would not be suitable for everyone.

Vat Retail Schemes
Retailers selling to the general public may not easily be able to produce vat sales invoices to individual customers and there are various vat retail schemes available on the Customs & Excise website that retailers can adopt.
The main benefits of the vat retail schemes are to dispense with every customer being issued a vat invoice unless requested.
Vat retail schemes can be used in conjunction with both flat rate schemes and the annual vat accounting scheme.
Terry Cartwright provides automated Vat Accounting Software at DIY Accounting for Self employed at DIY Accounting Vat Software and small companies at DIY Accounting Company Vat