The flat rate scheme (FRS) could save your business money, says Tax Tips & Advice. The FRS allows small firms to charge customers VAT at the full rate, but “pay a lesser amount to the taxman” in exchange for giving up their right to reclaim VAT on some purchases.
You can join as long as your estimated turnover for the next year (excluding VAT) is below £150,000. You don’t have to leave until your turnover for the previous year exceeds £230,000 (including VAT). For the first year of your VAT registration, you can reduce your flat rate by 1% (these vary according to the type of business).
Generally, you can’t reclaim VAT paid on purchases, but you may be able to reclaim it on capital assets worth more than £2,000. So it can make sense to “group purchases made from the same supplier at the same time”: buy a coffee machine, chair and tables costing £2,200 (including. VAT) and you “could reclaim VAT on the lot”. Any stock and capital assets costing less than £2,000, however, should be purchased prior to joining the FRS.