Flat Rate VAT Scheme

The Flat Rate VAT Scheme is designed to simplify VAT accounting for small businesses. Under this scheme, you pay a fixed rate of VAT to HMRC and keep the difference between what you charge your customers and pay to HMRC.

How it Works:

1. You charge the standard VAT rate (20%) to your customers
2. You pay a lower, fixed percentage of your gross (VAT-inclusive) turnover to HMRC
3. You keep the difference between what you charge and what you pay to HMRC

Eligibility:

You can join the scheme if your estimated VAT taxable turnover (excluding VAT) in the next year will be £150,000 or less.

Flat Rate Percentages:

The percentage you pay depends on your type of business. Here are some examples:

• Accountancy and legal services: 14.5%
• Advertising: 11%
• Computer and IT consultancy: 14.5%
• Hairdressing and beauty services: 13%
• Pubs: 6.5%

These rates can change, so always check the official GOV.UK page for the most current rates.

Advantages:

• Simplifies your VAT accounting
• Can save you money, depending on your business type and expenses
• Reduces paperwork and admin time

Disadvantages:

• You can't reclaim VAT on your purchases, except for certain capital assets over £2,000
• May not be beneficial if you have a lot of zero-rated sales or if you make a lot of purchases

Always consult with a qualified accountant or tax advisor to determine if the Flat Rate VAT Scheme is right for your business.