4. Direct Calculation Scheme

Who can use it

You might want to use this scheme if you make a small proportion of sales at one VAT rate and the majority at another rate.

Your turnover, excluding VAT, can’t be more than £1 million a year.

There’s a separate scheme for businesses with a turnover of between £1 million and £130 million.

How to calculate your VAT

  1. Calculate the expected selling prices (ESPs) for your minority or majority goods. Use the one that’s easier.

  2. Total up the ESP for the VAT period.

  3. If your goods are standard rated at 20% divide the total ESP by 6. If they’re zero rated, deduct the total ESP from your total sales. This will give you your sales at 20%. Then divide by 6.

  4. If you have reduced-rate (5%) goods deduct the ESP of this from your sales before calculating your VAT at 20%. Then calculate the VAT due on reduced-rate goods by dividing the ESP of these by 21. Add this figure to your 20% VAT to get total VAT due.

Example

Your total sales are £25,000.

Deduct the ESP of zero-rated goods = £2,500.

Deduct the ESP of reduced-rate (5% goods) = £105.


Sales of goods at the 20% VAT rate = £22,395.

Divide by 6 to calculate the VAT due on the 20% goods = £3,732.50.

Divide by 21 to calculate the VAT due on the 5% goods = £5.

Total VAT due is £3,732.50 + £5 = £3,737.50.

You must make an annual stock adjustment if your annual turnover is between £1 million and £130 million.