Change for businesses using the Flat Rate Scheme for postponed VAT accounting
HMRC has published guidance on postponed VAT accounting and businesses registered under the Flat Rate Scheme (FRS).
From 1 June 2022, the way in which businesses using the Flat Rate Scheme must account for postponed import VAT will change and the guidance details how VAT on imports should be accounted for by FRS users.
Up to 31 May 2022, these businesses are able to include import VAT within flat rate turnover and apply a percentage but from 1 June 2022, these businesses must account for import VAT outside of the FRS calculation.
What is the VAT Flat Rate Scheme?
The amount of VAT a business pays or claims back from HMRC is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.
With the FRS:
- You pay a fixed rate of VAT to HMRC
- You keep the difference between what you charge your customers and pay to HMRC
- You cannot reclaim the VAT on your purchases – except for certain capital assets over £2,000
The scheme is for businesses with a turnover of no more than £150,000 a year, excluding VAT.
What is postponed VAT accounting?
Postponed VAT accounting was introduced on 1 January 2021. It’s a way for UK VAT registered businesses to account for import VAT post Brexit. Businesses are able to record the VAT on their VAT Return rather than paying it immediately upon entry of the goods into the UK.
Businesses who were registered under the FRS were asked to include imports accounted for using postponed VAT accounting in the turnover that is subject to the flat rate percentage.
What is changing?
From 1 June 2022, businesses registered under the Flat Rate Scheme must not record imports accounted for under postponed VAT accounting within their flat rate turnover – instead, these should be accounted for separately, outside the FRS.
Are there any implications?
If you are a business which does a lot of importing, you might want to consider leaving the FRS because you may not be in a position to recover some VAT you have incurred.
The changes from 1 June 2022 are especially important for those who are deemed to be a ‘limited cost business’.
We can help you assess whether remaining in the FRS is your best option.
Regardless of whether you are in the FRS or are a business which imports, we recommend that all businesses should review their positions regularly to ensure that any VAT decisions they make provide the best option. There’s no one size fits all where businesses and VAT are concerned.
Get in touch
Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.
If you need help with any of the above, get in touch with your Cowgills contact or visit our website here.
The information was correct at time of publishing but may now be out of date.