"Small businesses" are allowed to use two "simplified schemes" for VAT:

· cash accounting (paying VAT to Customs only when customers have paid the trader), which is very commonly used by small businesses

· annual accounting (making only one return a year and making regular payments on account), which is relatively rare

The size of business which can use these schemes is increased to any business with taxable turnover of up to £1,350,000 pa, with effect from 1 April 2007. The limits for cash accounting and annual accounting were formerly £660,000pa.

A new "flat rate scheme" has been introduced with effect from 25 April 2002. Businesses with taxable turnover of up to £150,000 a year can opt for the scheme , which removes the need to identify individual transactions when accounting for VAT to Customs & Excise. Businesses can apply a single percentage to all their sales receipts in order to work out the VAT payable to Customs & Excise for the period.