Posted: 5. June 2019 by: Rupert Tennant

How to Choose a VAT Scheme?

How to Choose a VAT scheme?

June 5, 2019
VAT is basically a point of sale tax. That’s a tax that you pay every time you make a sale and the product you’ve sold has earned you more than you’ve invested in it – hence the name – value-added tax.
It’s a tax that’s mandatory after a particular point, but that many choose to pay voluntary due to the benefits it comes with. The most important of these is the ability to get the refund on the business-related purchases on which you’ve paid VAT yourself.

Standard accounting method

There are a few ways to account your profits and pay VAT on them. The most common of these is, therefore called a standard accounting method. It’s how most businesses do it. You’ll need to record all of your sales and purchase that you’ve made during a tax year.
This can be done via a manual (but digital) logbook in which you enter each of the transaction when they happen or a few of them at once at the end of a day. It can also be done automatically via a software tool. These are sent to HMRC.

Annual accounting VAT scheme

This is rather similar to the standard scheme, but it’s different from it in terms of how you’ll send the return. The returns on the standard scheme can be sent every 3 months, which is how income tax is paid as well. However, the annual accounting scheme allows you to pay only once.
The payments are still made on the quarterly level. That means that you report your taxes only once and you pay them in 4 instalments. It’s an option better suited to smaller and newer businesses, and if you’re one of those you should embrace it. It can’t be done if you have a turn over larger than 1.3 million a year.

Flat rate

A flat rate is scheme is made to simplify your tax accounting process. In this scheme, you’re paying a flat rate regardless of how much you earn and how you report your VAT. In this case, you always pay the same amount of VAT which is a fixed percentage of your turn over.
This is a scheme for much smaller businesses; you can’t use it if you have a turnover of more than £150.000. You’ll still need to record your transactions as any other business.

Cash accounting

Cash accounting is different in terms of when you need to report your income. In the case of the two schemes mentioned before you need to inform HMRC when you send an invoice and require payment. Basically, that means that you need to report incomes before you get the money you’re owed.
When it comes to cash accounting, you report the income once you get the money you are owed and that you have earned. This is best suited to cash-based businesses that get the payment right away. You need to have less than £1.3 million in turn over.

How to choose?

There are a few options to choose from, and small businesses owners usually don’t know how to choose since the difference seem to be subtle and small. However, choosing wisely could save you a lot of time and money you would otherwise spend on accounting.
The first thing to consider is what kind of turnover you could have. That will limit the option to one or two because the options are limited by turnover. Secondly, you should take into account how much of accounting practice you have and how much you can afford to spend on it.


Before you choose the scheme, it might be a good idea to consult an accountant. They will go through your records and tell which one of these options will suit you more than others. At the same time, you could hire the accountant to actually do the taxes for you.
It’s not necessary to do so, however. It’s possible to simply hire accountants to help you choose and provide you with broad advice. Most accountants have a rate for these services while others charge by the hour.


A tax scheme is a way you’ll pay your VAT tax. Value-added tax is the most common sales tax you pay on the amount your products are worth above what you paid for it. There are 3 or 4 options depending on how much your business earns within a year. You could report the taxes on monthly, quarterly and yearly basis.
At the same time, you need to make this choice based on how you plan to run your business in the future and not just in the time you’re starting to pay value-added tax. An accountant can help you with this choice.

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