Those with an annual, VAT-exclusive turnover below £150,000 per year may make big savings in their VAT payments by operating the 'flat rate scheme'.

Once approved to use the scheme by HMRC, a business can account for VAT on their turnover at a lower rate, while still charging customers the full 20 per cent.

Different rates apply to different types of business; for example hairdressers or beauticians account for VAT at a rate of 13 per cent, a management consultant 14 per cent, an architect or surveyor 14.5 per cent, a general builder (providing goods as well as services) 9.5 per cent and pubs 6.5 per cent.

In return, the business does not make a separate claim for VAT on its purchases, except for capital items over £2,000 (eg a commercial vehicle or plant and machinery) or stock and assets on hand at the date of registration, for which VAT can be recovered as normal.

If using the scheme within the first year of VAT registration the published rate can be reduced by 1 per cent for that first year. Once on the scheme, a business does not have to leave it until its tax inclusive turnover in the last 12 months, or looking forward, in the next 30 days, exceeds £230,000.

Those having difficulties with customers' late or non-payment of invoices may also find it beneficial to use cash accounting alongside the flat rate scheme, which allows the business to account for VAT only once it receives payment.