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VAT Guide for SMEs

The most important aspect of VAT compliance for SME’s operating with in the U.K. is to choose the correct VAT scheme. There are currently 3 main options, which are:

There are various advantages related to each scheme depending on the nature of the business that you operate. We will examine some of the basic principles of each scheme below.

Standard VAT Accounting

This VAT scheme enables companies that sell products to the general public, to calculate VAT due using point of sale and direct calculation methodologies. However this VAT scheme can only be used if annual turnover is under £130 million.

You also need to complete a VAT return every quarter and if you are using standard VAT accounting. These VAT returns need to include output tax which is the VAT that you have charged to your clients and customers, and input tax which is the VAT that your company has been charged on the products or services that you have purchased during the quarter.

 The Flat VAT Scheme

This VAT rate has been specifically designed to help small businesses, by making it easier for them to record VAT sales and purchases. Companies using this system of VAT payment apply a single percentage to their turnover in a VAT period.

The main benefit for SME’s is that this VAT scheme reduces the time it takes them to complete their VAT returns, and allows them to have greater visibility over cash flow as they can more easily calculate their exact VAT liability.

Cash Accounting Vat Scheme

Using this scheme, you do not need to pay any VAT until your customer has paid you. You can also reclaim VAT on your purchases when you have paid your supplier. You are not able to use this system if your annual turnover is above £1.35 million.

The main benefit to companies of this VAT system is that they can delay payment of VAT to HMRC until they have received full payment of the good and services that they have sold. This enables organisations to pay VAT in the quarter that they actually receive payment, and not the quarter in which the invoice was created.


This is just a small example of the various VAT systems that your company could operate within. For more detailed information we would suggest that you visit the HMRC website for a full breakdown of every applicable VAT system for companies trading in the U.K.

The below video produced by HMRC, outlines the help and support available for new and growing business that HMRC currently provides. We appreciate that some of this might be fairly basic information; however we hope you find it informative.

In 2010 the British Government attempted to simplify the TAX system for those operating within the SME sector. The Office Of Tax Simplification (OTS) which was established in 2010 and was tasked to conduct a review of the of the current TAX procedures for small businesses.

In 2012 they compiled this report focused on making the entire tax process much more simplified for small businesses in Britain.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

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