Flat Rate VAT Scheme

The Flat Rate VAT Scheme is run by HMRC.
It allows VAT-registered businesses to pay a fixed VAT percentage.

VAT is paid every three months.
The percentage is based on total turnover, not each sale.

The scheme is open to businesses with turnover under £150,000 per year.
It is designed to reduce paperwork and save time.

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Who Can Use the Flat Rate Scheme?

Most VAT-registered businesses can apply.
You can leave the scheme at any time.

Some businesses cannot join, including:

• Businesses involved in VAT offences in the past year
• Businesses that left the scheme within the last 12 months
• Businesses closely linked to another organisation

If taxable turnover goes above £230,000, the business must leave the scheme.

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How Much VAT Will a Business Pay?

VAT is calculated using a fixed flat rate.
You multiply your flat rate by your taxable turnover.

Example:
A turnover of £50,000 with a 10% rate results in £5,000 VAT.

Records are still important.
Businesses must keep receipts for all purchases.

New businesses get a 1% discount in their first year on the scheme.

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Limited Cost Businesses

A limited cost business spends less than £1,000 per year on goods.
This rule started in April 2017.

Limited cost businesses must use a 16.5% flat rate.

Some costs do not count as goods, including:

• Food and drink for staff
• Company vehicles and fuel
• Large capital purchases

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Flat Rates by Business Type

Businesses that are not limited cost use industry-based rates.
Each industry has its own flat rate.

Examples include:

Flat Rate	Business Type
4%	Food sales, newspapers, tobacco, children’s clothing
14.5%	Accountants, bookkeepers, IT consultants, engineers, legal services

Rates vary by trade and business activity.

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How to Apply for the Flat Rate Scheme

You can apply directly through HMRC.
Approved businesses benefit from simpler VAT management.

Key benefits include:

• Lower fixed VAT rates
• Fewer VAT rules
• Simpler record keeping
• Better cost control

Businesses that trade outside the UK or spend very little on goods may not benefit.
In these cases, the standard VAT scheme may be better.

More guidance is available on this website.