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Flat rate ripples

02 March 2006 / Neil Warren
Issue: 4047 / Categories: Comment & Analysis , VAT
NEIL WARREN gives five practical examples of when the VAT flat rate is not so flat after all

When Gordon Brown first announced the introduction of the VAT flat rate scheme five years ago 95% of accountants and tax advisers wrote it off as a bad deal.

So why get excited about it?

However in this article I will give five practical situations of how the flat rate scheme can also prove a winner showing why it is dangerous for tax advisers to ignore its potential benefits for clients.

What is it?

The basic principles of the flat rate scheme follow:

  • it is only available to small businesses with VAT exclusive annual taxable turnover of up to £150 000 and VAT exclusive annual total turnover i.e. including exempt and non-taxable income up to £187 500;
  • instead of paying VAT based on output tax less input tax a business will apply a given flat rate percentage to its gross...

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