Is the VAT Flat Rate Scheme for You?

If you’re a registered business in the UK, you might be eligible to join the Government’s Flat Rate VAT Scheme for small businesses. Some question the value of the scheme, and it’s certainly not right for all businesses. Here, we provide a comprehensive overview to the scheme, its relative merits and failures and make some suggestions.

What is the VAT flat rate scheme?

If you own a business that generates more than £83,000 in VAT taxable turnover (gross turnover) in the most recent 12-month period, you must register with HMRC for VAT payment.

Once you have registered, you then have two options for calculating your VAT tax return:

  1. Manual calculation
  2. Allowing HMRC to calculate it for you through the flat rate VAT scheme.

With the VAT Flat Rate Scheme, businesses pay a fixed rate of VAT (based on your turnover, not profit) to HMRC. You keep the difference between what you charge your customers and pay to HMRC, and you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000.

Can your business join the scheme?

Signing up to the scheme requires you to fulfil a couple of selection criteria:

  1. Your VAT turnover must be £150,000 or less (excluding VAT)
  2. You must apply to HMRC

You can join the scheme online, here, when you register for VAT.

When you choose your flat rate, you need to select which sector your business belongs to.

The benefits of the Flat Rate Scheme

There are a number of benefits to joining the Flat Rate Scheme. These include:

  1. If you are in your first year of VAT registration, you will receive a reduction of 1% on payment.
  2. Record keeping made simple: you’ll no longer need to keep detailed records of VAT expenses – though we’d always recommend you keep records of everything else!
  3. Lower costs: if you used to pay an accountant to manage those records, you now no longer need to.
  4. More predictable forecasting: you’ll always know what your VAT rate will be – although your bill each quarter will be different, depending on what you took that quarter.

Should you choose the Flat Rate Scheme?

This question is subjective depending on the circumstances of your business. At gpfm, we know that there is a significant overlap between financial planning and accountancy, and we have excellent connections, meaning we are confident that we could tell your business whether you would be better off under the Flat Rate Scheme.


Remember, HMRC are strict when it comes to VAT payments. They will record a ‘default’ if:

  • They don’t receive yourVAT return by the deadline
  • Full payment for theVAT due on your return hasn’t reached their account by the deadline

Penalties are many and varied for late VAT returns. You can view them here.

For advice on whether the Flat Rate Scheme would work for you, or advice surrounding financial planning for you or your business, contact us using the quick form here.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.