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

Which one of the following statements about the Flat Rate Scheme for VAT is correct?

Under the Flat Rate Scheme the trader pays HMRC a fixed percentage of its VAT-inclusive turnover and does not normally reclaim input VAT on purchases. It still charges customers VAT at the normal rates on its invoices. The scheme is designed to simplify VAT accounting.

  1. AThe trader charges customers VAT at the flat rate percentage on its invoices
  2. BThe trader pays HMRC a fixed percentage of its VAT-inclusive turnover and does not normally reclaim input VAT on purchasesCorrect
  3. CThe trader pays HMRC the flat rate percentage of its VAT-exclusive turnover and also reclaims input VAT
  4. DThe trader cannot use the scheme if it makes standard-rated supplies

Explanation

Under the scheme VAT is calculated as a fixed percentage of VAT-inclusive turnover, and input VAT is generally not reclaimed. Customers are still charged VAT at the normal rates on invoices, so the first option is wrong. The scheme is not restricted to traders without standard-rated sales.

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