VAT Flat Rate Scheme explained: who can join and how the rate works
The VAT Flat Rate Scheme lets a VAT-registered business pay HMRC a fixed percentage of its VAT-inclusive turnover instead of working out the difference between the VAT on its sales and the VAT on its purchases. You keep the difference between the VAT you charge customers and the flat rate you pay.
It can reduce paperwork, but it can also cost you money, because you usually cannot reclaim VAT on what you buy. This guide explains how the scheme works, who can join, how the rate is set and the trade-offs. It is general information, not tax advice.
In this guide
- How the scheme works
- Who can join, and when you must leave
- How your flat rate is set
- A worked example
- What to weigh up
- Keeping VAT records in EasyBooks
How the scheme works
Under the standard approach, you work out the VAT on your sales and the VAT on your purchases. Under the flat rate scheme, you pay HMRC a fixed percentage of your VAT-inclusive turnover. The percentage is your flat rate.
2 things stay the same. You still charge your customers VAT at the normal rate for what you sell, and you still issue VAT invoices to your VAT-registered customers. Only the way you work out what you pay HMRC changes.
GOV.UK says that under the scheme you cannot reclaim the VAT on your purchases, except for certain capital assets over £2,000. In practice that is the main trade-off.
Who can join, and when you must leave
You can join if you are VAT registered and you expect your VAT taxable turnover to be £150,000 or less, excluding VAT, in the next 12 months. VAT taxable turnover is the total of everything you sell that is not VAT exempt.
You must leave if your turnover grows. On the anniversary of joining, GOV.UK says you must leave the scheme if 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 must also leave if you expect to receive more than £230,000 including VAT in the next 30 days. Read the full rules on what to do if your circumstances change. After you leave, you must wait 12 months before you can rejoin.
Some businesses cannot join, for example one that left the scheme in the last 12 months. The list is on the GOV.UK page for who can join.
How your flat rate is set
GOV.UK says the VAT flat rate you use usually depends on your business type. 2 examples from the GOV.UK list: computer and IT consultancy is 14.5%, and any other activity not listed elsewhere is 12%. Always take your own rate from the official list, because rates differ by sector.
2 more rules affect the percentage:
- The first-year discount. You get a 1% discount if you are in your first year as a VAT-registered business.
- Limited cost business. If your spending on goods is low, you pay a higher rate of 16.5%. GOV.UK defines it as spending on relevant goods (including VAT) of less than 2% of your VAT-inclusive turnover or, if that is more than 2%, less than £1,000 a year. Only certain goods count, so check the test in VAT Notice 733.
A worked example
This example follows GOV.UK’s own illustration. A photographer invoices a customer £1,000 plus 20% VAT, so the customer pays £1,200. The photographer’s flat rate in the example is 11%.
| Step | Amount |
|---|---|
| Invoice before VAT | £1,000 |
| VAT charged to the customer at 20% | £200 |
| VAT-inclusive turnover | £1,200 |
| Flat rate of 11% of £1,200, paid to HMRC | £132 |
| Difference the business keeps | £68 |
The photographer collected £200 of VAT and paid £132, so the difference is £68. That is not profit by itself, because the photographer still has their own costs to pay. The method is the same whatever your rate is. If you had bought £400 of materials with VAT, you would not reclaim that VAT under the scheme.
The 20% is the standard rate of VAT on GOV.UK.
What to weigh up
Because you cannot reclaim VAT on most purchases, the scheme matters most when you have few purchases that carry VAT. It matters less if you buy a lot of goods with VAT. A plumber who buys materials with VAT every week will feel the difference more than a consultant who buys very little. Notice 733 also points out that if your customers are VAT registered, you still charge them VAT in the normal way and issue VAT invoices, so work out whether the scheme really saves you anything.
3 checks help you decide:
- Check how much VAT you pay on what you buy in a typical year.
- Check whether you would be a limited cost business, paying 16.5%.
- Decide whether you want fewer calculations or the lowest possible VAT bill.
An accountant can run these numbers on your actual figures. If you are unsure, ask before you join.
For the basics of VAT, see when to register for VAT on GOV.UK.
Keeping VAT records in EasyBooks
Clean records make VAT easier however you work out your bill. EasyBooks supports businesses that are VAT registered and businesses that are not. It keeps VAT records for your sales and purchases, produces VAT reports and, in the UK, prepares and sends VAT Returns to HMRC from the app. If you plan to use the flat rate scheme, ask EasyBooks support how your scheme is handled before you rely on it.
EasyBooks is a native app for Mac, iPhone and iPad, and it works offline. Try it on your own records for 14 days, with no card needed. See how EasyBooks handles Making Tax Digital for VAT.
The flat rate is a choice about how you pay. Good records help you make that choice with real numbers.
Keep clean VAT records on Mac, iPhone and iPad.
Try EasyBooks free for 14 days Or download EasyBooks:Frequently asked questions
What is the VAT Flat Rate Scheme?
The VAT Flat Rate Scheme lets a VAT-registered business pay HMRC a fixed percentage of its VAT-inclusive turnover instead of working out the difference between the VAT on its sales and the VAT on its purchases. You keep the difference between the VAT you charge and the flat rate you pay. GOV.UK explains the scheme.
Who can join the VAT Flat Rate Scheme?
You can join if you are VAT registered and you expect your VAT taxable turnover to be £150,000 or less, excluding VAT, in the next 12 months. Some businesses cannot join, for example if they left the scheme in the last 12 months.
When do I have to leave the VAT Flat Rate Scheme?
GOV.UK says you must leave if you are no longer eligible. On the anniversary of joining, you must also leave if 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. At any time, you must leave if you expect to receive more than £230,000 including VAT in the next 30 days. After you leave, you must wait 12 months before you can rejoin.
What is a limited cost business?
A limited cost business spends little on goods, and pays a higher flat rate of 16.5%. GOV.UK defines it as spending on relevant goods (including VAT) of less than 2% of your VAT-inclusive turnover or, if that is more than 2%, less than £1,000 a year. Only certain goods count, so check the test in VAT Notice 733.
Can I reclaim VAT on purchases under the flat rate scheme?
No, with one exception. GOV.UK says you cannot reclaim the VAT on your purchases, except for certain capital assets over £2,000.
Do I still issue VAT invoices under the flat rate scheme?
Yes. You still issue VAT invoices to your VAT-registered customers and charge VAT at the normal rate for what you sell. Only the way you work out what you pay HMRC changes.
Does EasyBooks handle VAT?
Yes. EasyBooks supports businesses that are VAT registered and those that are not, keeps VAT records for sales and purchases, and produces VAT reports. In the UK it prepares and sends VAT Returns to HMRC from the app.
This article provides general information, not accounting or tax advice. VAT facts were checked against GOV.UK on 5 October 2026. Rates and limits can change, so check GOV.UK or speak to your accountant before you join or leave the scheme.
