VAT Flat Rate Scheme
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1. Overview
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
- you keep the difference between what you charge your customers and pay to HMRC
- you cannot 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.
2. Join or leave the scheme
You must be eligible for the scheme.
How to join
You can:
- join the scheme online when you register for VAT
- fill in form VAT600FRS if you’ve already registered for VAT
You can join the Annual Accounting Scheme for VAT at the same time. Join both schemes when you register for VAT or use form VAT600 AA/FRS if you’ve already registered for VAT.
You’ll get confirmation you’ve joined the scheme through your VAT online account (or in the post if you do not apply online).
How to leave
You can choose to leave at any time. You must leave if you’re no longer eligible for the scheme.
To leave, write to HMRC and they will confirm your leaving date.
You must wait 12 months before you can rejoin the scheme.
BT VAT
HM Revenue and Customs
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3. Eligibility
You can join the Flat Rate Scheme if:
- you’re a VAT-registered business
- you expect your VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months
VAT taxable turnover is the total of everything sold that is not VAT exempt.
Exceptions
You cannot use the scheme if:
- you left the scheme in the last 12 months
- you committed a VAT offence in the last 12 months, for example VAT evasion
- you joined (or were eligible to join) a VAT group in the last 24 months
- you registered for VAT as a business division in the last 24 months
- your business is closely associated with another business
- you’ve joined a margin or capital goods VAT scheme
You cannot use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash-based method for calculating the turnover.
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) - or you expect it to be in the next 12 months
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)
4. Work out your flat rate
The VAT flat rate you use usually depends on your business type. You may pay a different rate if you only spend a small amount on goods.
You get a 1% discount if you’re in your first year as a VAT-registered business.
If you spend a small amount on goods
You’re classed as a ‘limited cost business’ if your goods cost less than either:
- 2% of your turnover
- £1,000 a year (if your costs are more than 2%)
This means you pay a higher rate of 16.5%. You can calculate if you need to pay the higher rate and work out which goods count as costs.
If you are not a limited cost business, you use your business type to work out your flat rate.
Flat rates for types of business
| Type of business | VAT flat rate (%) |
|---|---|
| Accountancy or book-keeping | 14.5 |
| Advertising | 11 |
| Agricultural services | 11 |
| Any other activity not listed elsewhere | 12 |
| Architect, civil and structural engineer or surveyor | 14.5 |
| Boarding or care of animals | 12 |
| Business services not listed elsewhere | 12 |
| Catering services including restaurants and takeaways before 15 July 2020 | 12.5 |
| Catering services including restaurants and takeaways from 15 July 2020 to 30 September 2021 | 4.5 |
| Catering services including restaurants and takeaways from 1 October 2021 to 31 March 2022 | 8.5 |
| Catering services including restaurants and takeaways from 1 April 2022 | 12.5 |
| Computer and IT consultancy or data processing | 14.5 |
| Computer repair services | 10.5 |
| Entertainment or journalism | 12.5 |
| Estate agency or property management services | 12 |
| Farming or agriculture not listed elsewhere | 6.5 |
| Film, radio, television or video production | 13 |
| Financial services | 13.5 |
| Forestry or fishing | 10.5 |
| General building or construction services* | 9.5 |
| Hairdressing or other beauty treatment services | 13 |
| Hiring or renting goods | 9.5 |
| Hotel or accommodation before 15 July 2020 | 10.5 |
| Hotel or accommodation from 15 July 2020 to 30 September 2021 | 0 |
| Hotel or accommodation from 1 October 2021 to 31 March 2022 | 5.5 |
| Hotel or accommodation from 1 April 2022 | 10.5 |
| Investigation or security | 12 |
| Labour-only building or construction services* | 14.5 |
| Laundry or dry-cleaning services | 12 |
| Lawyer or legal services | 14.5 |
| Library, archive, museum or other cultural activity | 9.5 |
| Management consultancy | 14 |
| Manufacturing fabricated metal products | 10.5 |
| Manufacturing food | 9 |
| Manufacturing not listed elsewhere | 9.5 |
| Manufacturing yarn, textiles or clothing | 9 |
| Membership organisation | 8 |
| Mining or quarrying | 10 |
| Packaging | 9 |
| Photography | 11 |
| Post offices | 5 |
| Printing | 8.5 |
| Publishing | 11 |
| Pubs before 15 July 2020 | 6.5 |
| Pubs from 15 July 2020 to 30 September 2021 | 1 |
| Pubs from 1 October 2021 to 31 March 2022 | 4 |
| Pubs from 1 April 2022 | 6.5 |
| Real estate activity not listed elsewhere | 14 |
| Repairing personal or household goods | 10 |
| Repairing vehicles | 8.5 |
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 4 |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8 |
| Retailing not listed elsewhere | 7.5 |
| Retailing vehicles or fuel | 6.5 |
| Secretarial services | 13 |
| Social work | 11 |
| Sport or recreation | 8.5 |
| Transport or storage, including couriers, freight, removals and taxis | 10 |
| Travel agency | 10.5 |
| Veterinary medicine | 11 |
| Wholesaling agricultural products | 8 |
| Wholesaling food | 7.5 |
| Wholesaling not listed elsewhere | 8.5 |
*‘Labour-only building or construction services’ means building services where the value of the materials supplied is less than 10% of the turnover for those services. If more than this amount, the business is classed as ‘General building or construction services’.
What you pay
You calculate the tax you pay by multiplying your VAT flat rate by your ‘VAT inclusive turnover’.
Example
You bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.
You’re a photographer, so the VAT flat rate for your business is 11%.
Your flat rate payment will be 11% of £1,200, or £132.
VAT inclusive turnover is different from standard VAT turnover. As well as business income (such as from sales), it includes the VAT paid on that income.
Calculating 2 flat rates
The first calculation should start from day one of your accounting period to the last day of that flat rate. The second should start from the date of the new flat rate to the end of your accounting period.
Get help
Call the VAT Helpline if you have any questions about the Flat Rate Scheme.