The flat rate VAT Scheme is a simplified way for small businesses to comply with their VAT obligations.
Usually the amount of VAT a business needs to pay to HMRC is the difference between the VAT charged on their Sales and the VAT paid on their purchases.
You can join the flat rate scheme if your turnover is £150,000 or less (excluding VAT).
To join, you need to apply with HMRC. You can apply online or by completing HMRC for VAT600FRS and posting it to HMRC.
You will receive a confirmation from HMRC confirming you have joined the scheme.
You can choose to leave the scheme at any time and you must leave if your turnover in the last 12 months, at any point, exceeds £230,000.
The flat rate you can use depends on your business category, see below:
Type of business
Current VAT flat rate (%)
Accountancy or book-keeping
Any other activity not listed elsewhere
Architect, civil and structural engineer or surveyor
Boarding or care of animals
Business services not listed elsewhere
Catering services including restaurants and takeaways
Computer and IT consultancy or data processing
Computer repair services
Entertainment or journalism
Estate agency or property management services
Farming or agriculture not listed elsewhere
Film, radio, television or video production
Forestry or fishing
General building or construction services*
Hairdressing or other beauty treatment services
Hiring or renting goods
Hotel or accommodation
Investigation or security
Labour-only building or construction services*
Laundry or dry-cleaning services
Lawyer or legal services
Library, archive, museum or other cultural activity
Manufacturing fabricated metal products
Manufacturing not listed elsewhere
Manufacturing yarn, textiles or clothing
Mining or quarrying
Real estate activity not listed elsewhere
Repairing personal or household goods
Retailing food, confectionery, tobacco, newspapers or children’s clothing
Retailing pharmaceuticals, medical goods, cosmetics or toiletries
Retailing not listed elsewhere
Retailing vehicles or fuel
Sport or recreation
Transport or storage, including couriers, freight, removals and taxis
Wholesaling agricultural products
Wholesaling not listed elsewhere
* ‘Labour-only building or construction services’ means building services where the value of the materials supplied is less than 10% of the turnover for those services. If more than this amount, the business is classed as ‘General building or construction services’.
From April 2017, new rules are being introduced.
You will be classed as a “limited cost business” if your goods cost less than either:
Do note that not all costs are included when calculating the 2%, and you may want to speak to your accountant or financial advisor to ensure you know what costs can be included.
This means you’ll pay the higher rate of 16.5%.
The flat rate scheme saves time by removing the need to individually records all purchase VAT.
The flat scheme is a far quicker and often cheaper option for businesses who don’t have the time, or inclination to file VAT under the standard approach, however it can be more costly if you make exempt supplies as flat rate vat is payable on ALL supplies made, including exempt supplies.