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 business

Below is a table with the values updated to 23 September 2017. (Source: gov.uk website)

Type of business Current VAT flat rate (%)
Advertising 11%
Agricultural services 11%
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%
Financial services 13.5%
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%
Management consultancy 14%
Manufacturing fabricated metal products 10.5%
Manufacturing food 9%
Manufacturing not listed elsewhere 9.5%
Manufacturing yarn, textiles or clothing 9%
Membership organisation 8%
Mining or quarrying 10%
Packaging 9%
Photography 11%
Post offices 5%
Printing 8.5%
Publishing 11%
Pubs 6.5%
Real estate activity not listed elsewhere 14%
Repairing personal or household goods 10%
Repairing vehicles 8.5%
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%
Secretarial services 13%
Social work 11%
Sport or recreation 8.5%
Transport or storage, including couriers, freight, removals and taxis 10%
Travel agency 10.5%
Veterinary medicine 11%
Wholesaling agricultural products 8%
Wholesaling food 7.5%
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.