The Annual Accounting Scheme is available for companies with an annual turnover above £1.35 million but below £2 million. Businesses registered for this scheme submit one single return per year rather than quarterly returns and make nine payments throughout the year instead of submitting quarterly payments at set intervals as required by HMRC.

The Flat Rate VAT Scheme is available to small businesses with an annual taxable turnover below £150,000. Under this scheme, instead of charging a regular rate on each sale (which can range from 0% to 20%), businesses pay a flat rate on their total turnover at the end of each quarter. This rate depends on type of business and varies from 4% to 14% with a further 1% discount in the first year of registration.

However, if you spend a small amount on tangible goods, you’ll be classed as a limited cost business. A small amount is defending as less than 2% of your turnover, or £1,000 a year (if your costs are more than 2%), which means you’ll default to a flat-rate percentage of 16.50%, regardless of the type of business.

There are several types of VAT schemes that are not standard, such as the Flat Rate VAT Scheme, and the Annual Accounting Scheme.

The process involved in registering voluntarily is more complex than compulsory registration and requires extensive knowledge of both UK and EU taxation laws.

Businesses can’t reclaim the VAT element of their start-up costs until they are registered for VAT with HMRC. So, businesses must decide on a registration threshold that suits their needs and financial situation.

Voluntary VAT registration can offer a number of advantages to small business owners, such as allowing them to reclaim any VAT incurred on purchases made by the company. It can also help with cash flow and provides an opportunity for a business to demonstrate its quality in terms of its financial management, as well as help boost credibility and customer confidence in the company’s services or products.

The current threshold for UK businesses is £85,000 and businesses that go over this must register for VAT. The introduction of Making Tax Digital has also changed the way some small businesses need to approach their tax affairs, so it may be worth considering voluntary registration even if you are below the threshold.

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Once registered, businesses can reclaim the VAT element of any purchases, including equipment and overhead expenses. Additionally, contractors hired by a business can also be reclaimed if they are registered for VAT.

The main impact of this is that profits in the margin (between the upper and lower limits of £50k and £250k) will pay an effective rate of tax of 26.5%.

What if my financial year doesn’t start on 1st April?

As of 1st April 2023, the current rate of Corporation Tax has increased from 19% to 25%.

Corporation tax is a tax on the profits of a company or business. It’s usually payable nine months after the end of the financial year. Depending on your specific industry and type of company business, there may be different ways to mitigate or reduce your tax liability.

Allowable business expenses are one way to potentially reduce your corporation tax bill – making sure all expenses are justified and accurately recorded is key in order to benefit from any deductions. If you’re an owner-director, then you need to consider the salary combination for yourself, employees and other types of payments made by the company (such as director’s loan account). This can help reduce your Corporation Tax bill.