VAT Flat Rate

Registering For The Scheme

Usually the amount of VAT payable or claimable to HM Revenue and Customs (HMRC) is the difference between the VAT that they charge and that they pay on their purchases.

With the Flat Rate Scheme:

  • You pay a fixed rate of VAT over to HMRC
  • You keep the difference between what you charge your customers and pay over to HMRC
  • You can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000

To join the scheme your VAT turnover must be less than £150,000 (excluding VAT) and you must apply to HMRC.

How To Join

You must first be eligible to join the scheme.

You can join the scheme:

  • Online – when you register for VAT
  • By post – fill in VAT 600 FRS and send it to the address on the form

Confirmation you’ve joined the scheme is sent to your VAT online account, or by post if you haven’t applied online.

Eligibility

You can join the Flat Rate Scheme if:

  • You’re a VAT registered business
  • You expect your VAT taxable turnover to be less than £150,000 (excluding VAT) in the next 12 months

Exceptions

You can’t use the scheme if:

  • You left the scheme in the last 12 months
  • You committed a VAT offence in the last 12 months, e.g. VAT evasion
  • You joined (or were eligible to join) a VAT group in the last 24 months
  • Your business is closely associated with another business
  • You’ve joined a margin or capital goods VAT scheme

You cannot use the scheme with the Cash Accounting Scheme. Instead the Flat Rate Scheme has its own cash-based method for calculating the turnover.

Leaving The Scheme

You must leave the scheme if:

  • You’re no longer eligible to be in it
  • On the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) or you expect it to be in the next 12 months
  • You expect your total income in the next 30 days alone to be more than £230,000 (including VAT)

VAT Flat Rates

The rate is a percentage of your flat rate turnover. The actual rate depends on your business type. If the rate changes, you must apply the new rate from the date that it changes.

In your first year as a VAT business the rate is reduced by 1% until the day before your registration anniversary.

A list of the rates can be found on this website

How VAT Is Calculated On A Flat Rate

The best way to explain this is by way of an example. So let’s say the company provides accountancy services. The VAT flat rate for the first year is 13.5% and 14.5% the second year. So if for the first VAT flat rate return, the turnover is £15,000 gross for the period, the VAT is 13.5% of gross, which would be £2,025 due to HMRC.

Another example would be if a company specialised in photography, the VAT flat rate percentage is 10% then 11% in the following year. So if they make £1,500 gross in the second year for the period, the VAT charge would be £165 due to HMRC as it is 11% of gross profits.