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  • Writer's pictureRhys Evans

The VAT Flat Rate Scheme – What do you need to know


When talking to Small Business owners, we find that VAT and VAT Registration is often their biggest hassle and frustration. The cost of recording and accounting for VAT on purchases can outweigh the amount of VAT reclaimable, especially for small businesses. This is where the VAT Flat Rate Scheme could be worth considering for your business.

What is the Flat Rate Scheme, and how does it work?

Usually, a business will pay the difference between what VAT it charges its customers, and the amount it has paid on the purchases made in the same period.

However, with the Flat Rate Scheme, the business will pay a fixed flat rate of VAT on its sales, and keep the difference between what is charged to customers, and what is paid to HMRC. Under the Flat Rate Scheme you will not be able to reclaim and VAT on purchases, except for certain Capital assets over £2,000.


To be able to join the Flat Rate Scheme, you must meet these criteria –

·         You must be a VAT Registered Business

·         You expect your VAT turnover to be £150,000 or less within the next 12 months

There are certain exceptions, where you cannot use the scheme –

·         You have left the scheme within the last 12 months

·         You committed a VAT offence in the last 12 months

·         You have, or are eligible to join a VAT group in the last 12 months

·         You registered for VAT as a business division in the last 24 months

·         You business is closely associated with another

·         You joined a margin or capital goods VAT scheme.

Work out your Flat Rate

The VAT flat rate you pay will usually depend on your business type. You may also pay a different rate if you only spend a small amount on goods, and classed as a “Limited Cost Business”.

You can calculate the flat rate you would pay on the government website -

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