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What Is The Flat Rate Scheme For VAT?


The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

With the Flat Rate Scheme:

you pay a fixed rate of VAT to HMRC which is less than the standard rate and may reduce after the first year
you keep the difference between what you charge your customers and pay to HMRC
you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

Talk to an accountant or tax adviser if you want advice on whether the Flat Rate Scheme is right for you. It is particularly useful for small businesses who charge for time and have few purchases.

See also Flat Rate Scheme in the Making Tax Digital section. Other schemes are also detailed in the section.