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VAT Flat Rate Scheme


VAT flat rate scheme

If you’re a small VAT registered business or think you may need to register for VAT in the near future you may want to consider using the VAT flat rate scheme.

How does it work?

When completing a normal VAT return you calculate 20% VAT on both your sales and VAT applicable expenditure and pay the difference to HMRC. However, under the flat rate scheme you simply apply a fixed flat rate percentage to your gross sales figure and pay that amount over to HMRC. The percentage you apply is based on the business sector you work within, for example advertising is 11% whereas an architect would apply 14.5%. The rates are set by HMRC and a full list can be found on their website. The scheme is only eligible to join for businesses with net sales below £150,000 per annum. Once your net sales exceed £320,000 you would have to leave the scheme and revert to filing VAT returns the normal way.


The main benefit is the reduction in VAT bookkeeping needed as you only need to apply your flat rate percentage to your gross sales. This could save a considerable amount of time because you don’t have to calculate the input tax on your expenses. Depending on the amount of VAT applicable expenses you have you may even make a VAT-saving, especially if you have a low cost base, for example if you run a consultancy business with very few costs the flat rate scheme may be very advantageous. All businesses signing up for the scheme are also entitled to a 1% discount if it’s your first year of VAT registration.

Any pitfalls?

The type of income that falls within the flat rate scheme is very wide. If you register for the scheme you’ll have to apply the flat rate percentage to all your income whether its standard rated, zero rated and even exempt. So for example if you work within education or healthcare the majority of your income is probably exempt meaning the flat rate scheme is not for you. Likewise if your business is heavily involved in new builds and zero rated sales you should steer clear of the scheme.

If you think your business could benefit from using the flat rate scheme or you would like some more information please contact us.

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