What is the VAT Flat Rate Scheme?
The VAT Flat Rate Scheme is a simplified way for small businesses to calculate VAT payable to HMRC. Instead of tracking VAT on every individual purchase and sale, a business pays a fixed percentage of its gross turnover, with the percentage depending on its trade sector. It is designed to reduce administrative burden, though it is not always the most tax-efficient option for every business.
Who can join the Flat Rate Scheme?
Businesses with an expected taxable turnover below a set threshold in the next 12 months can apply to join the scheme, provided they are not excluded for other reasons. A higher rate applies to businesses classed as limited cost traders, which typically spend very little on goods relative to their turnover. Businesses should compare the flat rate scheme against standard VAT accounting before joining, since the right choice depends on their specific costs and margins.
Related terms: VAT, VAT Registration, VAT Registration Threshold, VAT Cash Accounting Scheme
VAT rules depend on the nature of transactions and individual circumstances. This glossary provides general information and is not personalised tax advice.