Common VAT Schemes to Consider for Your Business
No matter whether you run your business as a small company or a large organization. It becomes mandatory for you to register for VAT once you reach the annual threshold. Many companies voluntarily register their VAT since it can be a strong strategic decision for the business. If this is your first time registering for VAT, ensure you understand how to select the best VAT scheme for your company.
When you register for VAT, you will be given the choice of selecting the VAT scheme you want to employ. Choosing the correct VAT scheme for your business is critical since it impacts how you compute your VAT return. You may have better control over your cash flow by selecting the most appropriate VAT scheme for your business. Let’s explore common VAT schemes.
Common VAT Schemes
VAT schemes are intended to make it easier for VAT-registered firms to compute and account for VAT to TRC. If you are VAT-registered, you must file returns to the FTA (Federal Tax Authority) detailing the amount of VAT you have charged. The report will also indicate how much VAT you paid to your suppliers for each transaction.
Each VAT scheme has rules and requirements for different types of businesses. So, selecting the appropriate VAT scheme according to your business needs and objectives is important. The way VAT works differs depending on which VAT scheme you register for. Some schemes have slightly different rules, such as eligibility and reporting requirements.
1. Standard VAT Scheme
The standard VAT scheme (SVS), also known as the accrual VAT scheme, is the option that is automatically selected when you initially register for VAT with FTA. The regular VAT system is completed every quarter. It’s simple, and the VAT payable to TRC is determined by subtracting VAT-billed sales from VAT-invoiced purchases.
If the entire amount after computation is positive, this amount is owed to FTA; if the whole amount after the calculation is negative, you are due a VAT refund from FTA. This VAT system allows you some control and flexibility over your cash flow between quarters. Are you a new business and want to register VAT with SVS? Then contact VAT registration companies in UAE and get VAT registered today!
2. Cash Accounting VAT Scheme
The cash accounting VAT system is not a separate scheme but a different method of computing VAT than the regular VAT scheme. If you want to switch to this strategy, you do not need to notify FTA, but you must remain consistent with whichever approach you choose. When you use the cash accounting VAT scheme, you only compute VAT when you receive sales invoices and pay purchase invoices.
The major advantage of choosing this scheme above the standard VAT system is that it relieves bad debts. Because you only calculate VAT on payments received, if a client or customer pays you late (or does not pay you at all), you are not required to include the sum in your VAT calculation.
Must read: Accounting vs Finance
3. VAT Annual Accounting Scheme
The VAT annual accounting scheme requires you to file a VAT return just once a year, rather than quarterly, as with the SVS or cash accounting VAT scheme. You can also employ the VAT yearly accounting scheme with the flat rate system. Even though you are not required to file as many VAT returns during the year, you must still make regular FTA payments.
The VAT yearly accounting system was created to assist small companies by minimizing the paperwork required throughout the year. Another advantage of the scheme is that payments are predictable and may be spaced out over the year. The annual accounting VAT scheme is best for you if your revenues are small and your business scope is small.
4. VAT Retail Scheme
VAT retail schemes are designed for enterprises to compute the VAT tax using various methods. Using a VAT retail scheme, you may calculate the value of all available deals for a certain period. The percentage of your transactions is accessible at regular, reduced, and zero VAT rates. You must record the amount due in your VAT account if you are a dealer.
Instead of calculating the VAT amount each time you make a transaction, you may do it once with each VAT Return. You can join the retail schemes at the start of any VAT period, and there is no compelling need to notify FTA. You may even update or remove it at the end of each VAT term.
5. VAT Margin Scheme
A VAT margin system is used to tax the difference between the amount a firm spends on certain items and the amount it later sells them for. The edge plot is used to reduce the possibility of a double tax assessment on the sale of recycled items. This plan is optional. It allows merchants to cover Value-Added Tax (VAT) on the difference between the bargain price and the product price.
When you sell available things, you must charge VAT. If your buy receipt did not include VAT, you must pay FTA the VAT you charged on your selling cost. However, there will be no VAT to ensure your price tag. Edge strategies can save you money if you sell specified types of items for which there is no VAT to be recovered.
6. VAT Flat Rate Scheme
When you utilize the VAT flat rate system, you continue to charge VAT at the applicable VAT rate on your goods or services and pay any VAT imposed on you on purchases. However, you do not utilize the standard VAT scheme technique or the cash accounting VAT scheme method to calculate how much VAT is owed to FTA.
The Flat Rate Scheme simplifies record-keeping by eliminating the need to calculate how much VAT you can guarantee on your purchases. The Flat Rate Scheme might also help you save money. Do you want to get registered for VAT? Then we have explained common VAT schemes and their requirements for you to choose from. So, get in touch with VAT registration companies in UAE and get VAT registered today!
Choose Your VAT Scheme Today!
These are just some of the most common VAT schemes for small enterprises. You may also want to learn more about specialized VAT schemes for certain industries. If you still need clarification about which VAT scheme to use or how to file your VAT returns. Then contact VAT registration companies and start consultation today and get VAT registered.