Reduction in the VAT rate: flat rate scheme
In line with the temporary reduction in the VAT rate to 5% for certain businesses in the hospitality sector, the flat rates for smaller businesses have also been reduced.
The VAT flat rate scheme is designed to simplify accounting records of sales and purchases, and the steps necessary to calculate VAT liabilities. It allows for a fixed flat rate percentage to be applied to gross turnover to arrive at the VAT due.
Fixed rate percentages vary depending on the type of business. The main benefits of the scheme are:
- simplified record keeping and accounting, as you do not have to keep detailed records of sales and invoices
- fixed rate percentages that are lower than the standard rate
- it helps to manage cash flow.
From 15 July until 12 January 2021, the flat rates have been reduced as follows:
- Catering services including restaurant and takeaways: reduced from 12.5% to 4.5%
- Hotel accommodation and similar: reduced from 10.5% to 0%
- Pubs: reduced from 6.5% to 1%
Financial accounting systems will need to be changed to ensure that the new flat rates are applied for the period, and those businesses that qualify can take full advantage of the opportunity.