Paying VAT – the different methods
There are different methods of paying tax, and Pearl will help you choose the right one for your business.
The different tax schemes are:
Standard VAT accounting
With standard VAT accounting you’ll reclaim VAT that you may have had to pay on your purchases. You’ll pay or reclaim the net of the VAT that you have charged your customers and the VAT that you have had to pay on your purchases.
Your VAT calculations are based on invoices raised, rather than when the invoices are paid.
Impact on cashflow – standard VAT accounting
This could either be good or bad for cashflow, depending on the circumstances. It’s bad when you have to pay VAT even when you aren’t paid for goods or services sold, but good when you can still reclaim for VAT on invoices received even if you haven’t yet paid.
Flat Rate VAT Scheme
Instead of calculating VAT on each and every transaction, you’ll pay a flat rate percentage of your turnover.
This can be good for small businesses because it makes it much quicker and simpler to account for VAT.
However, its advantage of having a rate lower than standard VAT is offset by an inability to reclaim VAT on purchases.
Cash VAT Accounting
Unlike Standard VAT accounting, Cash VAT accounting only takes into account VAT money actually paid or received, rather than just invoiced.
Since you won’t have to pay VAT on any goods or services that the customer hasn’t paid for, it is good for your business’s cashflow.