Most purpose-driven organisations don’t actively choose their VAT scheme.
They inherit it, set it up early on, or pick the simplest option, and then carry on as things evolve.
But as your organisation grows, taking on grants, trading, or new projects, that original setup can quietly stop working.
The main options (and key thresholds)
Most organisations use one of three approaches:
Standard VAT accounting
- The default once you’re VAT registered
- No turnover limits
- Often works well if you have higher costs and can reclaim VAT
Cash Accounting Scheme
- Pay VAT when you’re paid (not when invoiced)
- Available if taxable turnover is up to £1.35m
- Helps protect cashflow where income is delayed or irregular
Flat Rate Scheme
- Pay a fixed percentage of income instead of tracking VAT in detail
- Available if turnover is up to £150k (to join)
- Simpler, but not always the most cost-effective option
Why this matters for purpose-driven organisations
We often see VAT setups drift out of sync as organisations develop.
For example:
- Moving from mainly grant-funded to more trading income
- Increasing costs as you scale delivery or invest in infrastructure
- Running multiple projects with different funding models
In these situations, the VAT scheme that once made sense may no longer be the best fit, and can reduce the resources available for your work.
A quick spotlight: Flat Rate
The Flat Rate Scheme is popular because it’s simple.
But for many purpose-driven organisations, that simplicity can come at a cost.
It tends to work less well where:
- costs are increasing
- you’re investing in equipment or delivery
- margins are tighter because impact is prioritised over profit
We regularly see organisations paying more VAT than necessary by staying on flat rate too long.
A simple sense-check
- Higher costs or investment → standard VAT often works better
- Slow or staged income → cash accounting can ease pressure
- Simple, low-cost setup → flat rate may still work
Worth revisiting?
Your VAT scheme doesn’t need to be perfect, but it should reflect how your organisation operates now, not how it started.
A short review is often enough to spot:
- whether your current approach still fits
- any risks or missed opportunities
- simple changes that could improve cashflow
If you’d like a quick, practical sense-check, we’re always happy to take a look