The VAT flat rate scheme

The VAT flat rate scheme

If you have relatively simple affairs and are registered for VAT, you could apply to join the flat rate scheme. For example, you supply monthly IT services to a VAT registered business.

How does it work

You don't claim input VAT, rather, you pick a flat rate scheme/percentage (from the HMRC website) most relevant to your business and apply that rate to you VAT inclusive sales number

Can you give me an example?

  • You charge a client £10k + 20% VAT = £12,000
  • They pay you £12,000
  • You then calculate the VAT liability using your flat rate %, for example, 11%
  • £12,000 @ 11% = £1,320
  • You pay HMRC £1,320
  • Your profit from the job is therefore £10,680

When can I join?

  • you're a VAT-registered business
  • you expect your VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months

Are there any other things i need to be aware of?

  • If you purchase equipment above £2k, you can reclaim the VAT
  • You get a 1% discount in the first year you register for the scheme
  • This scheme can be combined with the annual VAT scheme
  • If your a "limited cost business", you pay a higher VAT rate of £16.5%. You're classed as a 'limited cost business' if your goods cost less than either:
    • 2% of your turnover
    • £1,000 a year (if your costs are more than 2%)