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

Which of the following businesses would be LEAST suited to the flat rate scheme?

A business making mostly zero-rated sales with large input VAT is least suited. Under the flat rate scheme it would pay a percentage of turnover and could not recover input VAT, whereas under the normal method it would usually obtain repayments from HMRC.

  1. AA consultancy with few purchases of goods and mainly standard-rated services
  2. BA business with mostly zero-rated sales and large amounts of input VAT on purchasesCorrect
  3. CA small trader wanting simpler VAT record-keeping
  4. DA trader with expected taxable turnover of £120,000 per year

Explanation

Under the flat rate scheme, VAT is a percentage of VAT-inclusive turnover and input VAT is not recovered, apart from certain capital purchases over £2,000 including VAT. A business with zero-rated sales and large input VAT normally reclaims net VAT under the normal method, so the scheme would be costly. The other businesses are eligible, and the first three could benefit from simplicity or low input VAT.

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