VAT Flat Rate Scheme

We are surprised by the number of smaller traders that are unaware of the Flat Rate Scheme for VAT.

The Flat Rate scheme is available to businesses with VAT exclusive annual turnover expected in the next 12 months of less than £150,000. The main reason for the scheme is to reduce the administration burden for business rather than reduce its VAT payments.  As with most schemes there are winners and losers, but it is definitely worth exploring and potentially making a “profit” from VAT.

The traditional way of declaring your VAT to HMRC is to deduct the VAT charged to your customers as output VAT and then offset any reclaimable VAT from your suppliers, this then gives the amount to pay to HMRC (or refund).

With the Flat Rate scheme the business will deduct a percentage from the Gross invoice value and that is all they need to do in terms of VAT, you are still required to keep accurate accounting records.

The percentage to apply for your business can be found on the HMRC website.  If you purchase Assets to use in your business that exceed £2,000 on one invoice then you are able to claim this Input VAT.

As an example a Management Consultant that has very little in the way of purchases would have a Flat Rate Percentage of 14%

Sales for example £60,000

Purchases subject to Input VAT £2,000

Under Normal VAT the returns for the year would be

Output Tax (£60,000+20%) £12,000

Input Tax (£2,000 / 6) = £333

Payment to HMRC – £11,667

Under the Flat Rate Scheme the payment to HMRC is

£60,000+£12,000 = £72,000 @ 14% = £10,080

This is a net saving on VAT of (£11,667-£10,080) = £1,587

If you register for the Flat Rate Scheme in the first year of trading you will also be eligible for a 1% reduction and on the above example this would equate to an additional £720 reduction in VAT payable to HMRC.

I would strongly recommend that you review your VAT position if you are businesses that will turnover less than £150,000 within the next 12 months.

For a free review of your VAT position please contact us at



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