Last year in the Autumn Statement the government proposed major changes to the VAT flat rate scheme, which are due to come into effect on 1 April 2017.

When the flat rate scheme was originally launched, HRMC declared it would help to reduce the burden on small businesses by minimising their reporting requirements. In a statement at the time, HMRC said that the ‘the flat rate scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due’.

VAT is usually a two-stage process where VAT registered businesses are required to deduct the VAT on their inputs, what they purchase from their outputs or what they sell. However, businesses permitted to use the flat rate scheme use a simplified single step process, whereby they only pay VAT on the sale at a rate determined upon their company’s industry type, which varies from business to business.