VAT Flat Rate Scheme UK
Understanding how VAT works for small businesses can be confusing, especially when dealing with paperwork and varying tax rates.
That’s why many small businesses in the UK opt for the VAT Flat Rate Scheme, a simplified method that allows you to calculate your VAT liability without having to track every single VAT expense and sale.
If you’re unsure what is VAT flat rate scheme, this page explains everything in simple terms and provides you with a free and easy-to-use flat rate VAT calculator to help you figure out your VAT payments accurately.
What is the VAT Flat Rate Scheme?
The VAT Flat Rate Scheme is a simplified VAT accounting method introduced by HMRC to reduce the administrative burden on small businesses.
Instead of calculating the VAT you owe based on the difference between the VAT you charge your customers and the VAT you reclaim on purchases, the scheme allows you to pay a fixed percentage of your total turnover as VAT.
The flat rate VAT you pay depends on your business sector. These rates vary but are designed to roughly approximate what a business would normally pay or reclaim in VAT under standard rules.
This makes it easier to manage your finances and gives you more time to focus on running your business.
Who Can Use the VAT Flat Rate Scheme?
The scheme is available to VAT-registered businesses with a taxable turnover of £150,000 or less (excluding VAT) per year. This is known as the flat rate VAT threshold.
You must apply to join the scheme through HMRC’s VAT Flat Rate page and you can leave the scheme at any time if you choose to return to standard VAT accounting.
Businesses cannot join the scheme if:
They’ve left the scheme in the past 12 months
They’ve been penalised for VAT-related offences in the past year
They are closely linked to another business
Their turnover is likely to exceed £230,000 in the coming 12 months
How to Calculate VAT Using the Flat Rate Scheme
Using our flat rate VAT calculator, you can instantly determine how much VAT your business needs to pay each quarter.
To calculate: Multiply your taxable turnover (excluding VAT) by the flat rate VAT percentage assigned to your business sector.
For example: If your turnover is £50,000 and your flat rate is 10%, you’ll pay £5,000 in VAT.
Remember, businesses in their first year of VAT registration under this scheme receive a 1% discount on their flat rate.
Use our VAT Rate page to explore about current VAT rates for different types of businesses.
Limited Cost Business – What Does It Mean?
Introduced in 2017, a limited cost business is one that spends less than £1,000 annually on goods (not including capital goods, food and drink, or vehicles/fuel). If your business falls under this category, your VAT flat rate increases to 16.5%, regardless of your sector.
This ensures businesses that claim minimal expenses don’t benefit unfairly from the scheme.
Common Flat Rate VAT Percentages by Industry
| Industry Type | Flat Rate VAT Percentage |
|---|---|
| Food retailers, newspapers, children’s clothing | 4% |
| Accountants, IT consultants, architects, legal services | 14.5% |
| Cleaning services, publishing, and other services | Varies by sector |
Each industry is assigned its own VAT flat rates, and it’s essential to choose the correct rate to stay compliant.
You can view the full list of VAT rates by sector on HMRC’s website.
Benefits of Using the VAT Flat Rate Scheme
Businesses often choose the VAT Flat Rate Scheme because it provides:
Simplified VAT returns (no need to track input VAT)
Easier record-keeping
Fixed, predictable payments
Time savings in calculating VAT
However, if your business deals with frequent purchases where you would normally reclaim a lot of input VAT, this scheme may not be ideal.
Try Our Flat Rate VAT Calculator
Our flat rate VAT calculator is designed to help you:
Calculate VAT owed under the VAT Flat Rate Scheme
Find the correct flat rate VAT percentage based on your industry
Save time with automatic calculations
Whether you’re a startup or an established business looking to simplify your tax process, this tool will give you instant answers.
Final Thoughts
If you’re asking, “what is VAT flat rate scheme,” and whether it’s the right choice for your business—consider your annual turnover, expenses, and how much time you want to save.
The VAT Flat Rate Scheme is a valuable option for many small businesses, but it’s not a one-size-fits-all. Make sure to assess your specific needs and consult a qualified accountant if needed.
Explore more on our VAT Rate page or check HMRC’s VAT rates to stay updated.
