Tx notes fa22 Final

June 2023 to March 2024 exams
Watch free ACCA TX lectures
10. Flat rate scheme 
(a)
The flat rate scheme is optional. It simplifies the way in which small businesses calculate their 
VAT liability.
(b)
The scheme can be used if the expected taxable turnover for the next 12 months does not 
exceed £150,000. The business can stay in the scheme if turnover is 
≤
£230,000. Turnover is 
determined by the method used to determine the VAT whilst in the scheme, that is cash basis 
or invoice basis.
(c)
Under the flat rate scheme, a business calculates its VAT liability by simply applying a flat rate 
percentage (given by HMRC based on trade sector) to total income inclusive of VAT and any 
exempt supplies. This removes the need to calculate and record output VAT and input VAT. 
(d)
The flat rate percentage is applied to the gross total income figure, with no input VAT being 
recovered. 
The percentage varies according to the type of trade that the business is involved in, and will 
be given to you in the examination.
A new higher flat rate of 16.5% has been introduced for businesses with either no, or only a 
small amount of purchases of goods. Students will not be expected to know where this rate is 
applicable but will need to know how to use it and identify whether the flat rate scheme is 
worthwhile, which is most unlikely in these circumstances - if a business makes taxable 
supplies of £100,000 (excluding VAT) then it would normally have to account for output VAT of 
£20,000 and then reduce it by any recoverable input VAT. If, however the flat rate scheme was 
adopted then irrespective of the amount of input VAT incurred the trader must make a payment 
of (100,000 x 120% = 120,000 x 16.5% = 19,800.
VAT at the rate of 20% is still treated as being charged where a supply is made to another VAT 
registered business, and in this case a VAT invoice must still be issued.

---

193
Only on 
OpenTuition
you can find: Free ACCA notes 
•
Free ACCA lectures 
•
Free ACCA tests 
•
Free ACCA tutor support 
•
The largest ACCA community