VAT Flat Rate Scheme calculator

How the Flat Rate Scheme works

How does the VAT Flat Rate Scheme work?

You still charge your customers VAT at the normal rate and show it on your invoices. Instead of paying HMRC the VAT you charged less the VAT you paid on purchases, you pay a fixed percentage of your VAT-inclusive turnover. HMRC sets the percentage by type of business, from 4% for retailing food or newspapers to 14.5% for accountancy, IT consultancy, legal services and labour-only construction. GOV.UK's example is a photographer who bills £1,000 plus £200 VAT: the flat rate payment is 11% of £1,200, which is £132, so the photographer keeps £68 of the £200 charged. In return you cannot reclaim VAT on your purchases, apart from single capital goods purchases of £2,000 or more. The guide to the Flat Rate Scheme covers joining, leaving and the record keeping.

What is a limited cost business?

Since 1 April 2017, a business that spends little on goods pays 16.5% whatever its sector. You are a limited cost business for a VAT period if the goods you buy, including VAT, come to less than 2% of your VAT-inclusive turnover, or to more than 2% but less than £1,000 a year, which is £250 for a quarterly return. Only goods used exclusively for the business count: stock, stationery, cleaning products, materials and the like. Services such as rent, accountancy, advertising and downloaded software do not count, and nor do capital goods such as laptops and phones, food or drink for you or your staff, or vehicle costs and fuel unless you are in the transport sector using your own or a leased vehicle. The test is run for each return, so a business can move between 16.5% and its sector rate from one quarter to the next.

Who can join the Flat Rate Scheme, and when must you leave?

You can apply if you are VAT registered and expect your VAT taxable turnover, excluding VAT, to be £150,000 or less in the next 12 months. You cannot join if you left the scheme in the last 12 months, if you are in or eligible for a VAT group, or if you use the Cash Accounting Scheme, a margin scheme or the Capital Goods Scheme. You must leave if, on the anniversary of joining, your total income including VAT in the past year was more than £230,000, if you expect it to be in the next 12 months, or if you expect more than £230,000 in the next 30 days alone. You can also leave by choice at any time by writing to HMRC, and you then wait 12 months before rejoining.

Is the Flat Rate Scheme worth it?

It depends on how much VAT you pay on purchases. The flat rates are set to approximate the net VAT for an average business in each sector, so a business that buys less than average keeps more. The scheme tends to suit people who sell services and buy little, as long as they buy enough goods to avoid the 16.5% rate; a contractor paying 16.5% on gross turnover pays more than the 16.67% of gross that 20% VAT represents, less the small amount they would have reclaimed. If you buy a lot of goods or services with VAT on them, or sell zero-rated or exempt items, normal accounting is usually better. Enter your own figures above.

Can I reclaim VAT on purchases on the Flat Rate Scheme?

Not in general: an allowance for input tax is built into the flat rate. The one exception is a single purchase of capital expenditure goods costing £2,000 or more including VAT, such as a van, a computer or a machine, which you claim in box 4 of your VAT return in the normal way. Several smaller purchases that add up to £2,000 do not qualify, and nor do services or goods bought to resell, lease out or use up within a year.

Rates checked 9 November 2026 against GOV.UK "VAT Flat Rate Scheme: work out your flat rate" and VAT Notice 733. Zero-rated and exempt sales are included in flat rate turnover at your sector rate, so this calculator, which treats all sales as standard-rated, understates the cost of the scheme if you have such income. This is general information, not tax advice. See GOV.UK: VAT Flat Rate Scheme.