The Flat Rate Scheme for VAT has been designed for small businesses to reduce the admin burden.

Eligibility

To partake in the Flat Rate Scheme, you must meet certain criteria:

  • you expect your turnover to be £150,000 (excluding VAT) or less in the next 12 months
  • you are a VAT-registered business
  • you haven’t committed a VAT offence in the last 12 months
  • you are not part of a group or a business
  • your business is not closesly associated with another business

You have to leave the scheme if you no longer meet the criteria as listed above. If your turnover has exceeded £230,000 (including VAT) on the anniversary date of joining the scheme, or if you expect it to exceed that amount in the next 12 months.

How it works

When you register for VAT, and you choose to join the Flat Rate Scheme, you will be asked to choose your business type. This will give you the rate to apply. You can find out the most common rates on the HMRC website.

You charge your customers VAT at 20% as usual. However you do not claim the VAT back on your expenses. When you come to file your VAT Return, the amount of VAT you pay to HMRC will be calculated as a percentage of your gross sales.

For example, if you have sales of £10,000 + VAT in your VAT period:

£10,000 + £2,000 = £12,000

Flat Rate Scheme percentage of 12% (the percentage for most Business Services businesses):

£12,000 x 12% = £1,440.

Therefore you would pay £1,440 to HMRC for your VAT liability.

Things to note:
  • If you are classed as a ‘limited costs business’, your Flat Rate percentage will be a higher rate of 16.5%. This classification has to be determined for each and every VAT period.
  • You are classed as a limited costs business if your goods cost less than either 2% of your turnover, or £1,000 a year (if costs are more than £2,000)
  • The Flat Rate VAT Scheme is not suitable for all businesses, regardless of eligibility, and you may be better off financially on the Standard VAT Accounting scheme.
  • You can join the Flat Rate Scheme after registering for VAT by completing a form VAT600 FRS
  • You can choose leave the scheme at any time by writing to HMRC letting them know you’d like to leave, and they will confirm your leaving date. You can send the letter to BT VAT HM Revenue and Customs, BX9 1WR.
  • We charge £150 + VAT for a business VAT registration – this service will include determining the best scheme for your business. Please contact us for more information.
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