Which VAT scheme should I be using?

Answer

There are two relevant VAT schemes for ecommerce sellers, the Flat Rate Scheme and the Standard Rate Scheme. Other schemes exist, but with the exception of sellers of used goods, these are irrelevant.

The Flat Rate Scheme is designed to reduce the admin for smaller businesses and is only accessible if your annual revenue is less than £230,000. With this scheme you pay c. 6.5% VAT on all of your sales and can only reclaim VAT on purchases of assets whose value exceeds £2,000.

The Standard Rate Scheme is available to all businesses. You charge 20% VAT as part of your sale (with the exception of certain 0% rated goods, like coffee, kids clothing, etc.) but are able to reclaim all input VAT, e.g. VAT on services like accounting fees, on the goods bought, and the import VAT identified on your C79 certificates.

Handling Flat Rate submissions is slightly less work as a result and we charge slightly less for handling such returns for this reason.

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