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ACCA Applied Skills · Taxation (UK) · The effect of special schemes

A trader is considering the flat rate scheme. Which feature of the flat rate scheme could make it WORSE than normal VAT accounting?

The flat rate scheme can be worse because the percentage applies to VAT-inclusive turnover and most input VAT cannot be reclaimed. A business with high standard-rated purchases may therefore pay more than under normal VAT accounting.

  1. AThe percentage is applied to VAT-inclusive turnover while input VAT on most purchases cannot be reclaimedCorrect
  2. BIt requires a return to be filed only once a year
  3. CVAT is accounted for only when cash is received
  4. DIt gives automatic relief for bad debts

Explanation

Because flat rate VAT is charged on VAT-inclusive turnover and most input VAT is not reclaimable, a business with large standard-rated purchases may pay more than under normal accounting. The other options describe annual or cash accounting features.

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