The main schemes are 'standard', 'cash' and 'flat rate'. Here's a quick overview of each one.
1. Standard VAT Accounting Scheme
On the Standard VAT Accounting Scheme (also known as accrual), you must pay HMRC the difference between the VAT amounts on your sales invoices and purchase invoices as they happen, regardless if they've been paid or not. This is usually from the date of the invoice.
This scheme is available if your annual income is £1,350,000 or more.
2. Cash Accounting Scheme
If you choose the Cash Accounting Scheme, you must pay and reclaim VAT only on sales invoices and purchase invoices that have already been paid. This scheme helps with cash flow because you aren't paying VAT to HMRC on invoices that your customers haven't paid you for yet.
This scheme is available if your annual income is less than £1,350,000.
3. Flat Rate Scheme
If you pay a fixed VAT rate to HMRC on paid invoices only then you're using the Flat Rate Scheme. This means you:
- pay a fixed rate of VAT to HMRC
- keep the difference between the VAT you charge your customers and the fixed rate you pay to HMRC
- cannot claim back VAT on purchases for your business–except for certain capital assets over £2,000
You can only join the scheme if your VAT turnover is £150,000 or less (excluding VAT). If you decide not to use the flat rate, you can skip any references of the scheme when setting up your QuickBooks.