What is the Flat Rate Scheme for VAT?
- Using standard VAT accounting, the VAT you pay to HM Revenue & Customs (HMRC) or claim back from them is the difference between the VAT you charge your customers and the VAT you pay on your purchases.
- Using the Flat Rate Scheme you pay VAT as a fixed percentage of your VAT inclusive turnover. The actual percentage you use depends on your type of business.
Who can and can’t join the Flat Rate Scheme?
Who can join the Flat Rate Scheme
You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:
- Your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less. Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies. It excludes the actual VAT that you charge, VAT exempt sales and sales of any capital assets.
- Generally you don’t reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000 – see the section in this guide on claiming back VAT on capital assets for the rules and restrictions.
- Once you join the scheme you can stay in it until your total business income is more than £230,000
Who can’t join the Flat Rate Scheme
You can’t join the Flat Rate Scheme if: You were in the scheme and left during the previous 12 months
- You are, or have been within the previous 24 months
- Eligible to join an existing VAT group
- Registered for VAT as a division of a larger business
- You use one of the margin schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme
- You have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year
- Your business is closely associated with another business
For more information on Flat Rate VAT click here