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VAT can be confusing for those who are self-employed, and it is understandable that they may overlook the issue. When you start your own business, you’ll be focused on getting established and growing the business. You will probably be below the £85,000 threshold for VAT registration when it becomes mandatory. You could of course register voluntarily if you’re under the threshold but you might be unsure if this is the best course of action or might be wary of the complexity of the VAT returns process and the associated admin time drain, as well as potential penalties for non-compliance. There are, of course, both benefits and challenges of being VAT registered. One of the main challenges is the administrative burden that comes with completing your quarterly VAT returns. The majority of VAT registered businesses operate through the VAT standard rate scheme, but there are some drawbacks to it from the perspective of self-employed people and small businesses. Before exploring the VAT flat rate scheme, let’s get a definition-check on the standard rate scheme. What does the Standard Rate Scheme entail? If you choose the standard VAT rate scheme, the difference between the quarterly input VAT and the output VAT is your VAT liability. Input VAT is how much VAT you pay for your purchases and output VAT is what you charge as VAT on your sales. You must subtract from the total input VAT paid by you on purchases the amount you have charged as output VAT. If output VAT is greater than input VAT, the resulting figure represents your VAT liability that must be paid to HMRC. HMRC will refund you the difference if input VAT is greater than output VAT. This is called a refund return. Most self-employed individuals are very busy, and have little time for administrative work. Calculating VAT returns and complying with the VAT standard scheme is not an easy task. Calculations for the VAT standard-rate scheme are complex and onerous, which can lead to a heavy administrative burden. This is why the VAT flat-rate scheme was introduced in the year 2002. What does the VAT Flat Rate Scheme involve? The VAT flat rate scheme was designed to simplify and streamline the charging and claiming of VAT for small businesses and self-employed individuals. How flat rate differs from standard rates: Calculate your VAT liability by applying a fixed-rate percentage to your VAT able turnover Additional turnover is generated by the difference between the VAT that you pay to HMRC, and the VAT that your customers charge. However, you can only claim VAT on certain business expenses, such as capital purchases that cost more than £2,000 and pre-registration costs. For your first registration, the fixed rate VAT percentage is reduced by 1%. You can join the VAT flat-rate scheme if your business has VAT registration and you do not expect your VAT-taxable revenue to exceed £150,000 over the next 12 month. You must leave the scheme if your VAT-inclusive annual turnover is more than £230,000 or you anticipate it will be higher. The flat rate scheme is based on the sector of your business. Rates range from 4% to 14.5%, except for limited-cost traders. Limited Cost Traders and The VAT Flat Rate Scheme If your business meets the criteria below, you may find that the flat rate scheme is beneficial. Spend less than 2% on goods of your annual turnover, including VAT If your cost is higher than 2%, you spend less than £1,000 on goods annually Capital expenditures are items such as fuel, vehicles, parts, and food or drinks for your staff or business. You are a limited-cost trader and you will be subject to the special flat rate of 16.5%. Limited cost traders tend to be businesses that provide a service more geared towards labour than retailers or professional services. It is important for limited cost traders to recheck eligibility every year against the criteria above. What are the advantages of the VAT flat rate scheme? You will save time by applying the VAT to your total turnover. Rather than just the VAT you charged and paid for your purchases. This scheme also offers a 1% VAT reduction for the first year you register. You will also have better financial clarity, as you’ll know what percentage of turnover is due to HMRC. It also gives peace of mind because it will be easier to stay compliant and therefore less likely to receive penalties from HMRC. VAT Accounting with Account-Ease Many small business and self-employed owners have questions about VAT. Should you register even if your turnover is lower than the registration threshold? What are the advantages and disadvantages. What is the best VAT scheme for your business? When deciding which VAT scheme will work best for you. You should consider a number of factors, including your turnover as a business. The amount of tax you can claim under the standard rate scheme and your spending on goods. You also need to take into account your sector of business or industry, how much admin capacity you have, and your level of expertise. Compare your VAT liability on the flat-rate Scheme with standard rate. This is where Account Ease comes in. As a Account Ease client you will work with your own dedicated accountant who will be able to guide you through the VAT landscape. We often recommend that our clients register for VAT even if turnover is below the mandatory registration threshold. But the advice and guidance you receive is always based on your specific circumstances and business goals. We will ensure that you are registered on the correct VAT scheme and we will also handle all of your personal and business accounting needs with a guarantee same-day response to all your questions. Your dedicated accountant will calculate the VAT liability every quarter. This is then reported to HMRC in your VAT Return. Call us today on 0208 133 4599 to speak with one of our expert VAT accountants.

Earnings can fluctuate when you’re self-employed, so it’s even more important to plan for the future. But it’s not easy! In this article, we’ll look at the ways you can enjoy self-employed life without worrying about what’s to come. Get started by understanding your finances Include time off in your pricing structure Plan for retirement Get the right insurance in place Diversifying your income stream Keep upgrading your skills Get started by understanding your finances It’s difficult to create any strategy without knowing what your business’s situation is in terms of financials. Begin by taking a look at your expenses, income and any financial obligations. Create a detailed budget that define your monthly earnings and expenses to identify areas that you could save to meet your the future goals. Include time off in your pricing structure Employed people are entitled to benefits such as parental and sick pay as well as holiday pay. As a self-employed person, you can’t receive these benefits on a regular basis, so it’s vital to ensure that the amount you offer your customers allows for enough wiggle room to take any vacation time you may have to take for example: To treat injuries or illness A time to relax for the well-deserved vacation Being called up to juror duty (which could go on for weeks, keeping you from going) Plan for retirement It’s not a given that you’ll be able to get a pension from your employer if you’re self-employed. Therefore, it’s beneficial to find tax-efficient methods to save in the near future like through creating private pensions. It is also helpful to consider what retirement goals you’ve set with your financial position today as well as any existing savings or investments for retirement. Are you in need of a retirement plan that will cover any outstanding debts or mortgages when you take your retirement? Think about other variables, including healthcare, living costs and inflation. What will you do with your business? While we’re discussing the topic of retirement, you should be contemplating what will happen to your business in the event that you retire. It could mean transfer of the business to your family friends or partners in business, reselling it, or closing down your business. Get the right insurance in place If you’re a self-employed person There are many different kinds of insurance you should be able to secure your business and you. For example:  Public liability insurance can cover legal costs and compensation if someone claims injury or property damage due to something your business has done Professional indemnity insurance protects your company from claims arising from error or omissions when you work. Employer’s liability insurance in case you have employees Product liability insurance is required if you offer physical products You’ll have personal insurance to think about. It could be an income security or critical illness coverage which can offer financial protection should you be unable work because of an injury or illness. If you’re unsure of the kind of insurance you should purchase It might be worth consulting an insurance professional to create an insurance plan that is comprehensive for those who are self-employed. Diversifying your income stream Have you heard the phrase “don’t put all your eggs in one basket”? This is true in business, which is why examining possibilities to diversify your income streams and spread the risk is not an excellent idea. For instance, is there other services you can provide? Are you able to generate passive income streams in any way? In the same way make sure you don’t rely only on one client or income source whenever it is possible. This will mean that your revenue is less affected when you lose a customer or they cut their spending. Keep upgrading your skills Industry trends and new technologies in your field can move fast, so stay ahead of the curve. Continuous learning will help you remain competitive and adaptable to market changes, so it’s well worth investing time and resources in developing new skills or brushing up existing ones. This could involve taking online courses, attending workshops or heading to networking events. It all opens doors to new opportunities, collaborations and potential clients. Being self-employed is great, but it certainly comes with its own challenges! Why not learn more about our online accounting services for self-employed people? Talk to one of the team on 0208 133 4599 or feel free to get an instant quote online.

The deadline for filing your 2022/23 self-assessment tax return online was 31st January 2024. The deadline for paper tax returns was 31st October 2023. In some very rare situations, HM Revenue & Customs (HMRC) may give you a different filing date for your tax return. But otherwise, it is not usually possible to get an extension to the filing deadline. Regardless of how you filed your tax return, any outstanding tax should have been paid by 31st January 2024. Interest will be charged on late payments after this date. What are the penalties for late tax returns? If HMRC asked you to complete a tax return for 2022/23 and you missed the deadline, you will automatically be fined regardless of whether you’re just one minute late or how small your tax liability is. Even if you are due a refund, a penalty would also normally apply. The penalties for filing your self-assessment tax return late are currently as follows: 1 day late – Automatic fixed penalty of £100. 3 months late – £10 per day up to a 90 maximum of £900. 6 months late – £300 or 5% of the tax due, whichever is higher. 12 months late – £300 or 5% of the tax due, whichever is higher. In serious cases, you may even be asked to pay up to 100% of the tax due instead. These penalties are in addition to one another, so the minimum late filing penalty for a tax return that is 12-months late will be upwards of £1,600 depending on the tax liability. Penalties for late payment of tax are: 30 days late – 5% of tax due Six months late – 5% of outstanding tax due at that date 12 months late – 5% of outstanding tax due at that date It is also important to bear in mind that interest will be charged on top of these penalties on the outstanding tax due, plus any outstanding penalties due. This is charged at a rate of 7.75%. My tax return is overdue, what should I do? Firstly, you need to consider if the tax return is required or if you have a legitimate reason for the delay: Cancelling a tax return You can use the ‘ask HMRC online’ option and speak to a webchat advisor or complete a form online. If HMRC agrees, you no do not need to file a return and any penalties issued for missing the deadline should be cancelled Remember to note down who you spoke to and when, what outcome is expected and when you will receive their decision. HMRC is unlikely to withdraw a return if you have been self-employed at any point during the tax year – even a very short time will count. Typically, you will only have two years from the end of the tax year for which the return is due to request its withdrawal, but it’s always better to deal with your tax affairs swiftly. Reasonable excuses If you have a good reason for the delay, you may be able to appeal against the penalty. HMRC lists several common examples of Reasonable Excuses on its website. These include: Your partner or another close relative died shortly before the tax return or payment deadline You had an unexpected stay in hospital that prevented you from dealing with your tax affairs You had a serious or life-threatening illness Your computer or software failed just before or while you were preparing your online return Service issues with HMRC online services What’s unlikely to be reasonable excuse? The following aren’t usually accepted as a reasonable excuse: you relied on someone else to send your return and they didn’t your cheque bounced or payment failed because you didn’t have enough money you found the HMRC online system too difficult to use you didn’t get a reminder from HMRC you made a mistake on your tax return If you’ve missed the deadline, file your tax return as quickly as possible If the tax return can’t be withdrawn and you don’t have a good excuse, the next best thing is to file your tax return as soon as is practical – even if you can’t afford your tax bill yet. As you’ve seen, the late filing penalties will increase the longer the delay. How long do I have to change my tax return? If you make a mistake on your tax return, you can amend it. To amend a tax return online you must make your changes within 12 months of the self-assessment deadline (by 31st January 2025 for a 2022/23 self-assessment tax return). After this deadline has passed, if you need to change your tax return, you’ll need to write to HMRC. Need more help? We love working with self-employed professionals and independent business owners and if you are not receiving the service and support you deserve from your accountant then please talk to us on 0208 133 4599or use our online enquiry form.