What’s the VAT flat rate scheme?The VAT flat rate scheme (VAT FRS) is an alternative method for small businesses to calculate how much VAT to pay HMRC at the end of each quarter.
On the off chance that you are not currently utilising the VAT flat rate scheme, the amount you pay to HMRC at the end of each quarter will be calculated as the difference between the VAT you have charged your clients and the VAT you can claim back on your supplier bills.
If your business is signed up to the scheme, you will still charge your customers VAT the normal way, but the amount you will pay to HMRC will be calculated as a percentage of your total sales. The exact specific percentage amount will vary depending on the trade classification of your business.
When registered to the VAT flat rate scheme you will not be able to reclaim VAT on purchases you have made except if you are purchasing a capital asset that will cost over £2000 (VAT included). In the event you want to resell this capital asset in the future you will have to pay back HMRC the standard VAT you had originally claimed.
The VAT flat rate scheme was designed with small businesses in mind. It’s objective is to save businesses time by simplifying the submission process at the end of each quarter rather than saving them cash. This is the reason why the percentage rate changes between trades, as some businesses would be able to reclaim more than they have to buy more goods to operate.
The advantages of using the VAT flat rate scheme for your business
As mentioned above there are several advantages in signing up for this scheme, among these:
- You will get a 1% discount if you’re in your first year your business is VAT-registered
- There are fewer chances you make a mistake when submitting a VAT return to HMRC
- You can calculate the amount of VAT you will be paying at the end of each quarter
The potential disadvantages of the VAT flat rate scheme for your business
Registering for this scheme might not be the best for you if:
- The majority of the items you buy are charge at the standard rate, as in most cases you will not be able to reclaim the vat
- Your business regularly receives a repayment under the standard VAT accounting regime
- A significant portion of the sales you make are either zero-rated or sales exempt
Flat rates for the different types of businessBelow is a table with the values updated to 23 September 2017. (Source: gov.uk website)
|Type of business||Current VAT flat rate (%)|
|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%|
|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%|
|Manufacturing fabricated metal products||10.5%|
|Manufacturing not listed elsewhere||9.5%|
|Manufacturing yarn, textiles or clothing||9%|
|Mining or quarrying||10%|
|Real estate activity not listed elsewhere||14%|
|Repairing personal or household goods||10%|
|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%|
|Sport or recreation||8.5%|
|Transport or storage, including couriers, freight, removals and taxis||10%|
|Wholesaling agricultural products||8%|
|Wholesaling not listed elsewhere||8.5%|
Want to find out the VAT FRS rate for your business?
This page on the HMRC website lists all the different rates.
Want to calculate VAT for a new number?
Return to the online VAT calculator.