VAT Flat Rate Scheme is a UK tax scheme that helps small businesses simplify their VAT payments by allowing them to pay a fixed percentage of their total sales to HMRC instead of calculating VAT on each individual sale and purchase.
Businesses still charge VAT to customers as usual, but they pay HMRC a flat rate based on their industry type and keep the difference. However, they cannot reclaim VAT on most purchases, except for certain large capital assets.
This scheme is available to businesses with a VAT turnover of £150,000 or less (excluding VAT) and is designed to reduce paperwork and simplify accounting. A special higher flat rate applies to businesses that spend very little on goods, called limited-cost businesses.
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