Get A Quote
Get A Quote

VAT – flat rate scheme

The VAT Flat Rate Scheme (FRS) is designed to simplify how small businesses account for VAT. Instead of tracking the actual VAT on every sale and purchase, eligible businesses pay a fixed percentage of their VAT-inclusive turnover. This can reduce administrative burden and improve cash flow.

What Is the Flat Rate Scheme?

Under the Flat Rate Scheme, you:

  • Charge VAT at the standard rate to your customers

  • Pay a fixed percentage of your total VAT-inclusive turnover to HMRC

The fixed percentage you pay depends on your business sector.

Instead of reclaiming VAT on purchases, you keep the difference between what you charge and what you pay, simplifying record-keeping.

Who Can Use It?

You may be eligible for the Flat Rate Scheme if:

  • Your VAT-taxable turnover (excluding VAT) is below the registration threshold (and expected to remain below the exit threshold)

  • You are VAT-registered

  • You are not already using another special VAT accounting scheme

Once accepted, you normally stay in the scheme until you opt out, your turnover exceeds the exit threshold, or HMRC disallows your participation.

How It Works

  1. You charge VAT at the appropriate rate on your sales invoices

  2. You pay HMRC a fixed percentage of your total VAT-inclusive turnover

  3. You do not reclaim VAT on most business purchases

  4. Record-keeping is simplified, as you no longer track VAT on individual purchases

The relevant percentage depends on your business sector classification under the scheme.

Example of Calculation

Suppose you choose the Flat Rate Scheme and the Flat Rate percentage for your business sector is 12%:

  • You invoice a client for £1,200 (including £200 VAT)

  • Under the scheme, you pay 12% of £1,200 = £144 to HMRC

  • You keep the difference between the £200 VAT charged and the £144 due

This simplified payment may benefit cash flow and reduce admin work.

When It Works Best

The Flat Rate Scheme may be beneficial when:

  • Your purchase VAT is relatively low

  • You want simpler VAT reporting

  • You prefer predictable monthly or quarterly VAT payments

  • Administrative ease is a priority

However, if your business incurs significant VAT on purchases, other VAT schemes might be more appropriate.

Special Considerations

Newly VAT-Registered Businesses

New VAT registrants may benefit from a temporary additional allowance in the first year of registration, potentially reducing the effective Flat Rate percentage.

Excluded Businesses

Certain businesses cannot use the Flat Rate Scheme, such as:

  • VAT groups

  • Not-for-profit organisations (in most cases)

  • Businesses with unusually high VAT-inclusive turnover

Eligibility must be carefully checked before applying.

Record-Keeping Under the Scheme

Even though the Flat Rate Scheme simplifies VAT accounting, you must still:

  • Keep VAT records and invoices

  • Submit VAT returns on time

  • Retain all business purchase documents

Accurate records protect you in the event of an enquiry.

Need Help Deciding?

Need VAT Advice?

Get expert guidance to maximise VAT recovery and stay compliant.

The Flat Rate Scheme can be a useful option for many small businesses, but it is not suitable for every situation. Applegrow Financial Advisors can help you:

  • Assess whether the scheme is right for your business

  • Calculate potential tax and cash flow impact

  • Advise on switching or exiting the scheme

  • Ensure proper compliance with VAT rules

Need Help Deciding?

Speak to Applegrow today for VAT support tailored to your business.

Contact us