What is the VAT Flat Rate Scheme?

What is the VAT Flat Rate Scheme?

Any business in the UK with a turnover of more than £82,000 must be registered for VAT. This means adding on 20% VAT to your normal sales invoice and paying the 20% VAT over to the VAT office. However, there is a scheme called “The Flat Rate Scheme” for VAT that was designed by HMRC to make life easier and smoother for small business. It is available for any VAT registered business in the UK with a turnover less than £150,000 per annum and simplifies your quarterly VAT return. You pay over a fixed percentage of your total sales invoices, rather than the 20%. On the flip side – you don’t claim input VAT, but this is taken into account when calculating the flat rate percentage. Have a look at the calculation below for a comprehensive example of how the VAT flat rate scheme works. If you would like a 3rd party check of this information, please visit the HMRC VAT Flat Rate Schemewebsite.

How is the VAT Flat Rate Scheme Calculated?

Once you have become VAT registered, you will be required to file a VAT return every three months. These days the VAT return must be filed online and it is also prudent to ensure you have a direct debit setup for the VAT office. Let’s have a look at how the VAT you pay will be calculated. For this example, we are going to assume you have raised only a single invoice in the quarter and it is for £10,000 + VAT.

Your invoice has a net value of £10,000 +VAT  £2,000

Gives you a total gross invoice value of £12,000

Let’s assume you are a management consultant and this is your first year of being VAT registered. You can see from our Rates guide below – you have a flat rate % of 14%. As this is your first year – you receive a 1% discount! So your flat rate % is going to be 13%

The calculation will be as follows.

£12,000 x 13% = £1560

You have probably by now already spotted that your client will have paid you £2,000 in VAT, but you will only pay over £1560 to the VAT office. Under the Vat flat rate scheme, the balance (in this case £440) is profit for your business.

VAT Flat Rate Scheme Rates

Have a look at the rates page for an activity that best describes your business and feel free to contact us for any further information. To find out the correct % for the VAT flat rate scheme applicable to your business, have a look at the list below. Alternatively, give us a call as the different categories can sometimes seem a little bit ambiguous. Please note  – we have only included the most popular categories.