Selecting a VAT accounting scheme is an important step, but knowing how and when to change schemes is equally significant. The approach that served your company well at the beginning may no longer be the most suitable as circumstances evolve. Understanding the process will help you make the transition without disruption.
Why businesses decide to change
There are several common reasons. Many new enterprises begin with the Flat Rate Scheme because it is simple and predictable. However, as turnover increases, the fixed percentage applied may leave you paying more VAT than necessary. At that point, the Standard Accounting Scheme can become more cost effective. Alternatively, if cash flow is tight because you are paying VAT before your customers settle their invoices, the Cash Accounting Scheme may offer greater flexibility.
Eligibility
and restrictions
Every scheme is subject to thresholds and conditions set by HMRC. The Flat Rate
Scheme is only available if annual turnover does not exceed one hundred and
fifty thousand pounds. Once that limit is passed, participation is no longer
permitted. The Cash Accounting Scheme is restricted to companies with turnover
below one million three hundred and fifty thousand pounds. Monitoring these
thresholds is essential, as exceeding them requires you to change scheme
promptly.
How the
change is made
Switching is not complicated, but it must be carried out correctly. In most
cases you need to notify HMRC in writing, although some changes can be recorded
through the VAT online account. The key requirement is to ensure your VAT
returns are aligned, with no overlap and no missing period. If you move from
Cash Accounting to Standard Accounting, for example, all outstanding invoices
must be recorded accurately so that VAT is neither claimed twice nor omitted.
Records
and systems
Whenever a change is made, bookkeeping systems must be reviewed. Some
accounting software can manage a transition automatically, while others require
adjustments. Your accountant should ensure that VAT control accounts are
updated so that the first return under the new scheme begins with accurate
figures. Weak records at this stage often trigger questions from HMRC.
Practical
advice
Whenever possible, plan the change to coincide with the end of a VAT quarter.
This avoids blending two sets of rules in one return. Consider carefully
whether the administrative effort involved is outweighed by the financial
advantage. Sometimes the savings are clear, but in other cases stability and
consistency provide greater value.
Conclusion
VAT schemes are not permanent choices. As your company develops, the most
appropriate option may change. Handling the switch carefully protects
compliance and preserves efficiency. Always seek professional advice before
making the decision.
