What is Flat Rate VAT

What is flat rate VAT? Flat rate VAT is a percentage of VAT you pay on your total turnover, it is lower than the standard rate of 20%. There are certain rules that you must follow, but for most small businesses using this scheme is easier and more cost-effective.

Who can use Flat rate VAT?

A small business that has an estimated annual turnover including the VAT of up to £150,000 can use the scheme. Once you have joined the scheme you can continue using it until you turnover reaches £230,000.

Advantages of using Flat rate VAT scheme

There are several advantages to using the scheme, these include:

  • When you first join you may be entitled to a 1% discount for the first year.
  • Your invoices must show VAT, but you do not have to include it in your accounts. Your paperwork is therefore simpler.
  • Using a much simpler VAT scheme will reduce the chance of making mistakes.
  • You will know how much you need to pay for your VAT as it will always be a percentage of sales.

What is Flat Rate VAT – Disadvantages

There are a few disadvantages to consider as well:

  • If you make a lot of purchase you cannot reclaim the VAT, so the scheme may actually cost you more.
  • If you are a growing business and reach £230,000, you will need to change your VAT procedures to account for all VAT.

Discount for Flat rate VAT

If you are a new user to the scheme you will receive a 1% reduction for the first year. After the first year, the rate will revert back to the percentage for your business type.

Flat Rate VAT Calculator

Try using our flat rate VAT calculator to see how much you would pay on the scheme.

What VAT percentage is my business?

Each different type of business has a different rate. We have listed a few of the most popular ones for small business here:

Business TypePercentage
Accountancy or Bookkeeping14.5
General Building or construction9.5
Hotel or accommodation10.5
Retailing food, confectionery, tobacco, newspapers or children’s clothing4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries8
Retailing other7.5
Secretarial services13
Transport or storage10

Ensure you check the complete list before applying, a full list of VAT rates can be downloaded from the HMRC website.

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