We have already touched on what VAT is and if it applies to your small business in a previous post. Automatically when you register with Revenue your business comes under the standard VAT scheme which is a rate of 23%. It may be applicable and advantageous, depending on your business circumstances, to apply for one of the other schemes that are available.
But should your small business apply for a different VAT scheme?
Under the standard VAT scheme when your business has made a sale and invoiced for it then you’re liable for the VAT as opposed to when you are paid. In the case when you receive a VAT invoice from a supplier your business can claim the VAT immediately, instead of when you clear the invoice.
The money received basis scheme or cash accounting scheme is advantageous for start-up or small businesses. With this scheme instead of being liable for VAT when your business issues an invoice, the liability only accrues when revenue has been received from your customer against the invoice. This scheme is good if cash flow is an issue over any given time which is quite common in small businesses.
The third VAT scheme is the annual accounting scheme in which your business can opt to pay VAT through direct debit instalments. This is beneficial to many businesses as it reduces the amount of VAT-related paperwork that is required throughout the year. The amount due on each of these direct debit instalments are based on the VAT your business paid in the previous year. In the event that there is a discrepancy at the end of the twelve-month period when your VAT return is submitted then the balance will be cleared. This outstanding balance should be less than 20% of the annual liability. If it isn’t then interest may be applied.
If you are still unsure if you should change to a different VAT scheme or unsure about other VAT related topics then be sure to look at our VAT guide.
