Using standard VAT accounting, the VAT you pay to HM Revenue & Customs or claim back from them is the difference between the VAT you charge your customers and the VAT you pay on your purchases.  Using the Flat Rate Scheme you settle your entire VAT liability by paying a fixed percentage of your sales. The actual percentage you use depends on your type of business you run.

You can join the Flat Rate Scheme for VAT and pay VAT on the flat rate percentage of your turnover if:

(a)  Your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less

(b)  Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies. It excludes the actual VAT that you charge, VAT exempt sales and sales of any capital assets.

(c)  Once you join the scheme you can stay in it until your total business income is more than £230,000.

(d)  You do continue to show the full rate of VAT (e.g. 20%) on your sales invoices


You cannot reclaim the VAT on any purchases that you make (although you may be able to claim back the VAT on fixed assets worth costing more than £2,000)


(a)  The accounting is simpler.  You don’t have to record the VAT that you charge on every sale and purchase, as you do with standard VAT accounting.

(b)  If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered.

(c)  You no longer have to work out what VAT on purchases you can and can’t reclaim, therefore it’s easier to calculate and there is less chance of making mistakes

(d)  You always know what percentage of your takings you will have to pay to HMRC.

(e)  If you have a business with very low overheads – consultancy or IT consultancy for example then you may make a profit on the Flat Rate Scheme although this profit is however taxable.

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