UK VAT Flat Rate Scheme Explained
A simplified way for small businesses to calculate and pay VAT, reducing admin and providing predictable payments.
What is the Flat Rate Scheme?
The VAT Flat Rate Scheme is an alternative to traditional VAT accounting, designed by HMRC to simplify tax for small businesses. Instead of tracking the VAT on every sale and purchase, you pay a fixed percentage of your total VAT-inclusive turnover. This rate is lower than the standard VAT rate because it accounts for the input VAT you would normally reclaim on your purchases. The scheme saves time on paperwork and can make your VAT payments more predictable. Our VAT calculator can help with standard calculations.
Who Can Join?
You must be a VAT-registered business.
You expect your VAT taxable turnover to be £150,000 or less in the next 12 months.
Certain business sectors have specific rules or may be excluded.
How It Works: A Simple Example
Let's say your business provides IT consultancy (14.5% flat rate) and you send an invoice for £1,000 + VAT:
- You charge your client £1,000 + 20% VAT = £1,200.
- You calculate the VAT to pay to HMRC using your flat rate: £1,200 x 14.5% = £174.
- You pay HMRC £174 for this invoice.
- The difference (£200 - £174 = £26) is additional income for your business.
Invoice Total (inc. VAT)
£1,200.00
x Flat Rate (e.g., 14.5%)
£174.00
VAT payable to HMRC
Work Out Your Flat Rate
The VAT flat rate you use usually depends on your business type. However, you may pay a different rate if you only spend a small amount on goods.
You get a 1% discount on your flat rate percentage if you’re in your first year as a VAT-registered business.
If you spend a small amount on goods
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%)
This means you must pay a higher rate of 16.5%. If you are not a limited cost business, you use your business type to work out your flat rate from the table below. Note that managing payments can sometimes be a challenge, and it's worth reading our guide on what to do if you're struggling to pay VAT.
Flat Rates by Business Type
Your flat rate depends on your business type. Find your sector in the table below. Rates are reviewed regularly by HMRC.
| Business Sector | Flat Rate (%) |
|---|---|
| Accountancy or book-keeping | 14.5% |
| Advertising | 11% |
| Agricultural services | 11% |
| Any other activity not listed elsewhere | 12% |
| Architect, civil and structural engineer or surveyor | 14.5% |
| Boarding or care of animals | 12% |
| Business services not listed elsewhere | 12% |
| Catering services including restaurants and takeaways | 12.5% |
| Computer and IT consultancy or data processing | 14.5% |
| Computer repair services | 10.5% |
| Entertainment or journalism | 12.5% |
| Estate agency or property management services | 12% |
| Farming or agriculture not listed elsewhere | 6.5% |
| Film, radio, television or video production | 13% |
| Financial services | 13.5% |
| Forestry or fishing | 10.5% |
| General building or construction services* | 9.5% |
| Hairdressing or other beauty treatment services | 13% |
| Hiring or renting goods | 9.5% |
| Hotel or accommodation | 10.5% |
| Investigation or security | 12% |
| Labour-only building or construction services* | 14.5% |
| Laundry or dry-cleaning services | 12% |
| Lawyer or legal services | 14.5% |
| Library, archive, museum or other cultural activity | 9.5% |
| Management consultancy | 14% |
| Manufacturing fabricated metal products | 10.5% |
| Manufacturing food | 9% |
| Manufacturing not listed elsewhere | 9.5% |
| Manufacturing yarn, textiles or clothing | 9% |
| Membership organisation | 8% |
| Mining or quarrying | 10% |
| Packaging | 9% |
| Photography | 11% |
| Post offices | 5% |
| Printing | 8.5% |
| Publishing | 11% |
| Pubs | 6.5% |
| Real estate activity not listed elsewhere | 14% |
| Repairing personal or household goods | 10% |
| Repairing vehicles | 8.5% |
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 4% |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8% |
| Retailing not listed elsewhere | 7.5% |
| Retailing vehicles or fuel | 6.5% |
| Secretarial services | 13% |
| Social work | 11% |
| Sport or recreation | 8.5% |
| Transport or storage, including couriers, freight, removals and taxis | 10% |
| Travel agency | 10.5% |
| Veterinary medicine | 11% |
| Wholesaling agricultural products | 8% |
| Wholesaling food | 7.5% |
| Wholesaling not listed elsewhere | 8.5% |
Pros and Cons of the Scheme
Benefits
Simpler Record-Keeping
You don't need to record VAT on every individual purchase, saving significant admin time.
Predictable Payments
Your VAT payments are a fixed percentage of your turnover, making cash flow management easier.
Potential Financial Gain
If your flat rate is lower than the standard rate VAT you charge on your sales, your business keeps the difference.
Limitations
No VAT Reclaim on Purchases
You generally cannot reclaim VAT on goods and services, as the flat rate already accounts for this.
Turnover Threshold
You must leave the scheme if your annual turnover exceeds £230,000.
Limited Cost Trader Rate
If your goods cost less than 2% of your turnover (or < £1,000/year), you must use a higher 16.5% rate, which may not be beneficial.
Frequently Asked Questions
Is the Flat Rate Scheme Right for You?
The scheme can be a great time-saver, but it's not suitable for everyone. Always calculate if it's financially beneficial for your specific circumstances.