Normal VAT and FRS (Flat Rate Scheme)
Normal scheme is where VAT is collected on company sales @ standard rate of VAT (currently 20%) and pay this across to the Customs & Excise less the VAT that your company has incurred on its expenses.
FRS (Flat Rate Scheme) is where VAT is collected on company sales @ standard rate of VAT but pay across to the Customs & Excise at a given rate on the gross turnover ie sales value + VAT (eg 14.5% for IT Consultants with reduction to 13.5% in the first year).There is no allowable deduction for input tax on expenditure (except for capital items over £2000).
The FRS aims to simplify VAT Accounting for small businesses. The scheme is available to most businesses whose taxable turnover (excluding VAT) is expected to be less than £150,000 in the next 12 months and total business income less than £187,500. The scheme can continue to be used until VAT inclusive annual turnover exceeds £230,000. Whether or not to apply depends on the relationship to forecast Vatable income Vatable expenditure.