Flat rate VAT scheme
If your turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total, VAT inclusive, turnover. Although you cannot reclaim VAT on purchases - it is taken into account in calculating the flat rate percentage - the flat rate scheme can reduce the time that you need to spend on accounting for and working out your VAT. Even though you still need to show a VAT amount on each sales invoice, you don't need to record how much VAT you charge on every sale. Nor do you need to record the VAT you pay on every purchase.
If you register for the flat rate scheme in your first year of VAT registration, you can take advantage of a one per cent reduction in your flat rate.
On this page:
- What is the flat rate VAT scheme?
- Who can join the flat rate scheme?
- Who cannot join the flat rate scheme?
- The pros and cons of the flat rate VAT scheme
- Working out your flat rate percentage
- Working out your VAT using your flat rate percentage
- Record keeping for the flat rate scheme
- Using the flat rate scheme if you are a farmer, florist or barrister
- Joining and leaving the flat rate scheme
- The flat rate scheme and other VAT schemes
- Other VAT accounting schemes
- Finding out more
What is the flat rate VAT scheme?
Using standard VAT accounting, your VAT due or reclaimable is the difference between the VAT you charge your customers and the VAT you pay on your purchases.
Using the flat rate VAT scheme you pay VAT as a fixed percentage of your VAT inclusive turnover. The actual percentage you use depends on your type of business.
Find the right flat-rate percentage for your business in VAT Notice 733
Who can join the flat rate scheme?
You can pay VAT as a flat rate percentage of your turnover if:
- Your estimated taxable turnover - excluding VAT - in the next year will be £150,000 or less. Your taxable turnover is the total of everything that you sell during the year. 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.
- Your estimated total business income - including VAT - in the next year will be £187,500 or less. Your total business income is the total value - including VAT - of everything that you supply, including exempt and non-business income, other than income from the sale of any capital assets.
VAT rates explained: standard, reduced, zero, exempt
Understanding VAT exemption and partial exemption
Generally you don't reclaim any of the VAT that you pay on purchases, although there are a few exceptions. For example, you can reclaim VAT on capital assets worth more than £2,000.
Once you join the scheme you can stay in it until your total business income is more than £225,000.
Who cannot join the flat rate scheme?
You cannot join the flat rate scheme if:
- your total turnover is over £187,500 per year
- you were in the scheme and left during the previous 12 months
- you are, or have been within the previous 24 months, registered for VAT as the division of a larger business, or as part of a group, or you are eligible to do so
- your business is closely associated with another business
More about associated businesses and the Flat Rate Scheme in VAT Notice 733
- you use the second-hand goods margin scheme, the auctioneers' scheme, the tour operators' margin scheme, or the capital goods scheme
- you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year.
The pros and cons of the flat rate VAT scheme
Benefits of using a flat rate scheme
Using the flat rate VAT scheme can save you time and smooth your cashflow because:
- You don't have to record the VAT that you charge on every sale and purchase, as you would with standard VAT accounting.
- You don't need to keep detailed records of the VAT you charge on sales or pay on purchases. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting
- A first year discount. 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
Potential disadvantages of using a flat rate scheme
The VAT flat rate scheme might not be right for your business:
- You cannot generally reclaim any VAT on your purchases. This has already been taken into account in your flat rate percentage. This is especially a disadvantage if you buy mostly standard-rated items.
- You still need to calculate VAT and issue VAT invoices if your customers are registered for VAT.
- If you regularly receive a VAT repayment, you will lose out.
- You may pay more VAT if you make a lot of zero-rated or exempt sales.
Working out your flat rate percentage
There is a range of flat rate percentages. The one you choose depends on your business sector. If you work in more than one business sector, you must use the one percentage which represents the greater part of your turnover. You then apply that percentage to your total turnover.
Find the right flat-rate percentage for your business in VAT notice 733
Calculate how much VAT you might pay under the flat-rate scheme using our Ready Reckoner
Working out your VAT using your flat rate percentage
You calculate your VAT payable by multiplying your flat rate VAT percentage to your 'flat rate turnover'.
Your flat rate turnover is all the supplies your business makes including all:
- VAT inclusive sales for standard rate, zero rate and reduced rate supplies
- sales of exempt supplies, such as rent or lottery commission
- sales of capital expenditure goods - unless they are supplies on which VAT has to be calculated outside the flat rate scheme
- sales to other EU countries
Record keeping for the flat rate scheme
Once you are using the scheme, you will need to keep a record in your VAT account of your flat rate calculation showing:
- the flat rate turnover that you used to calculate your flat rate VAT payment
- the flat rate percentage you used
- your VAT due.
Using the flat rate scheme if you are a farmer, florist or barrister
If you're a farmer, there is a separate agricultural flat rate scheme, which is an alternative to registering for VAT. You don't charge VAT, but you can add - and keep - a flat rate addition of four per cent on sales that you make to VAT registered customers. The flat rate addition isn't VAT, but compensates you for some of the VAT that you pay on your purchases.
Read more about the agricultural flat-rate scheme in VAT notice 700/46
Barristers and advocates who use the flat rate scheme and who share premises with others may need to use special accounting rules.
More about barristers and the flat rate scheme in VAT Notice 700/44
Florists using the flat rate scheme who are members of organisations such as Interflora, Teleflorist or Flowergram must use special methods to account for their sales and purchases.
More about florists and the flat rate scheme in VAT Notice 733
Joining and leaving the flat rate scheme
How to join the flat rate scheme
You can join the flat rate scheme at the beginning of any VAT accounting period.
You can join in one of several ways.
You can download and complete an application form from the HMRC website and send the form to:
HM Revenue & Customs
Imperial House
77 Victoria Street
Grimsby
DN31 1DB
Get form VAT 600FRS flat-rate scheme application
You can join the flat rate scheme and the annual accounting scheme at the same time using one form.
How to leave the flat rate scheme
You may leave the scheme at any time by telling HMRC - you will leave at the end of your next VAT accounting period.
You must notify HMRC if there are significant changes to your business which may affect your eligibility to use the scheme.
You must leave the scheme if:
- on the anniversary of your joining the scheme your previous year's tax-inclusive turnover was more than £225,000
- you think your turnover in the next 30 days alone will be more than £225,000
- you start to use one of the other special schemes such as the Second-hand goods margin scheme, the Auctioneers' scheme, the Tour operators' margin scheme, or the Capital Goods Scheme
- you become part of a larger group or division or become eligible to do so.
You may also be taken off the scheme by HMRC if we find that you have calculated your VAT incorrectly or have become ineligible but have not told us.
If you leave the flat rate scheme, you can't rejoin it for at least 12 months.
The flat rate scheme and other VAT schemes
You can use the flat rate scheme together with of the annual accounting VAT scheme.
Annual accounting scheme
Using annual VAT accounting, you make nine monthly or three quarterly interim payments throughout the year. You only need to complete one VAT return at the end of the year when you either make a balancing payment or receive a balancing refund
Get information about the annual accounting scheme
You can join the flat rate scheme and the annual accounting scheme at the same time using a single application form.
Other VAT accounting schemes
Cash accounting scheme
Unlike standard VAT accounting where VAT is due when you issue an invoice, using cash accounting you don't have to pay VAT until your customers pay you.
Find out about the cash accounting scheme
Retail schemes
If you are a retailer, there are several schemes where you can simplify your calculation of VAT by not having to account for VAT on each individual sale.
Get information about the retail schemes
Margin schemes for second-hand goods, art, antiques, collectibles
If you buy or sell second-hand goods, antiques, collectibles or art, you only need to account for VAT on the difference between the price you paid for an item and the price at which you sell it - your margin.
Find out about second-hand goods margin schemes
Tour operator's margin scheme
The tour operator's margin scheme makes VAT accounting easier for tour operator's who buy and sell travel, accommodation and certain other services internationally.
More about VAT and tour operators in VAT Notice 709/5
Finding out more
The HMRC website has detailed information about the flat rate scheme.
More about the flat rate scheme in VAT Notice 733
Read about theAgricultural Flat-Rate Scheme in VAT Notice 700/46
Use the VAT schemes wizard to find out what VAT scheme is right for your business
You can also call the HMRC National Advice Service on Tel 0845 010 9000. Lines are open from 8.00 am to 8.00 pm, Monday to Friday
