Is the Flat Rate VAT scheme good for your business
Is the Flat Rate VAT scheme good for your business? Several questions are being asked about the new Flat Rate VAT scheme in Ghana. In this article, we are going to look at the advantages of a Flat Rate VAT scheme to young entrepreneurs in Ghana.
What is Flat Rate VAT Scheme?
Accountants and Financial Analysts give us the ‘ins and outs’ of the Flat Rate VAT Scheme. Flat rate VAT is becoming more and more popular with small businesses in the world. It is right to explore this further to see how this would benefit you and your business.
Firstly, who can join the Flat Rate Scheme? All businesses that are liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies. It excludes the actual VAT that you charge, VAT exempt sales and the sale of any capital assets.
Generally, you do not reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than 20,000 Ghana cedis approximately. Once you join the scheme you can stay in it until your total business income is more than 225,000 Ghana cedis. This threshold will be increased with effect from July 2017 to reflect the decrease in the standard rate of VAT to 3%.
VAT as the division of a larger business, or as part of a group, or you are eligible to do so. You use one of the Margin Schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme. You have been convicted of a VAT offense or charged a penalty for VAT evasion in the last year. Your business is closely associated with another business.
The flat rate scheme involves calculating the VAT payable to GRA each quarter as a flat percentage of your gross turnover (gross turnover broadly includes all sales, inclusive of VAT, and business bank interest received), as opposed to the traditional method of deducting the VAT paid on your purchases from the VAT charged on your sales. The percentage applicable depends on the type of business. Benefits to particular business depend on a number of factors including the VAT status as well as considering the VAT implications of joining the scheme there is also an impact on corporation tax.
What are the Benefits?
Using the Flat Rate Scheme can save you time and smooth your cash flow. It offers these benefits: –
- You do not have to record the VAT that you charge on every sale and purchase, as you would with standard VAT accounting. This can mean you spend less time on the books, and more time on your business.
- You do need to show VAT separately on your invoices, just as you do for normal VAT accounting. A first-year discount. If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you become VAT registered.
- Fewer rules to follow. You no longer have to work out what VAT on purchases you can and can’t reclaim. Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right. Certainly, You always know what percentage of your takings you will have to pay to GRA. There is often effectively a cash positive position when comparing flat rate VAT calculations to standard VAT.