Not every business owner will be aware, but there may be a time when changing your VAT scheme will be an extremely smart option.
This may be because you have reached a turnover threshold or because a different scheme works out as being more beneficial to your business.
The VAT scheme that you register with will help to determine how you record and report to HMRC, so it is important that you are registered with a VAT scheme that works for the size of your business.
Available packages for changing your VAT scheme
There is a range of VAT schemes available for business owners:
- Not Registered – VAT options are not available when entering transactions and no VAT calculates.
- Standard VAT – VAT calculates on invoices and credits issued and received.
- VAT Cash Accounting – VAT calculates on payments and receipts.
- Flat Rate Invoice Based – VAT calculates on invoices and credits issued and received at a specified percentage.
- Flat Rate Cash Based – VAT calculates on payments and receipts at a specified percentage.
When is changing your VAT scheme a good idea?
Businesses should always be aware of which VAT scheme they are registered with and consider if they need to change.
Some businesses need to change scheme if they have reached an income threshold, while another reason you may change scheme is that your existing arrangement is beneficial for your business.
One example of this would be if you are making more purchases with VAT that you can claim back, meaning that you will have less VAT to pay to HMRC.
As per HMRC guidelines, you can only join a new VAT scheme at the start of a new accounting period, so it is recommended you change your VAT scheme after you have produced your final VAT Return for the previous scheme.
To ensure VAT is accounted for correctly, you should not enter any transactions on the new scheme until you have run the return and changed your scheme.
How to change your VAT scheme
Once you have decided that you need to change the VAT scheme for your business, you need to inform HMRC. To do this, you must apply directly to HMRC to request a change to a different scheme.
There are two ways to request a change to your VAT scheme:
- Online through your VAT online account – your online Government Gateway account.
- By filling out form VAT484 and giving HMRC the information that is needed
It is important to remember that the decision of your VAT scheme is made by HMRC, and that you have no automatic, legal right to change to a different scheme – it is up to HMRC to decide if they’ll grant your request.
Once you have filled out the information online, or provided details through form VAT484, HMRC will review your business situation and decide whether or not you can swap schemes.
The same applies to deregistering for VAT. If your business shrinks and there’s no benefit to you being VAT registered, you have to apply to deregister from the VAT scheme.
HMRC controls this process and has the final say over whether you can register or deregister.
Do you have questions about VAT?
At Relative, we recognise that running a business often means wearing different hats and experience tells us that most of the time the financial advice you receive isn’t born from the same viewpoint.
Give us a call on 01484 441431 or email our team on hello@itsrelative.co.uk. We are here to help.