VAT flat rate scheme set a fixed percentage to be applied when calculating your VAT payable to HM Revenue and Customs.
Your company may opt for the VAT flat rate scheme if your annual sales are up to £150,000. Under this scheme, the business is not required to keep records on input tax on every purchase transaction. This may save a considerable amount of time on VAT administration. However, businesses still need to keep records of their gross purchases and expenses for corporation tax purposes or income tax purposes.
No record for input tax
Your company charge a standard rate of VAT on sales as usual. The difference of this scheme to that of the standard VAT scheme is that your company does not need to account for input tax on expenses. Your company simply pays a percentage of VAT on sales including all reduced, zero-rated and exempt sales to HM Revenue and Customs.
VAT accounting records
It is highly recommended for your company to keep your accounting records the same way as you would if you are under the Standard VAT scheme. This would enable you to monitor and compare if your company is paying more VAT under the VAT flat rate scheme to HMRC. If your company is persistently paying extra VAT, consider opting back to the VAT standard rate scheme.
Your company must leave the flat rate scheme when its sales exceeded £150,000.
Calculate VAT payable under the VAT flat rate scheme
You multiply your sales inclusive of VAT charged to your customers with the VAT flat rate applicable to your business.
For example, you provide IT consulting services. Your VAT flat rate is 14.5%. Let’s say, your income from your consulting business is £10,000 and you charge 20% VAT on top. Your total income inclusive VAT is £12,000. The VAT payable to HMRC would be £1,740.
The VAT rates for businesses approved under the flat rate scheme vary and it is dependent on the business sector you are in.
VAT flat rate percentage by business sector
|Type of business||Current VAT flat rate|
|Accountancy or bookkeeping||14.5%|
|Any other services not listed elsewhere||12%|
|Architect, civil and structural engineer or surveyor||14.5%|
|Boarding or care of animals||12%|
|Business services that are 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 agricultural that is 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 that is 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 that is not listed elsewhere||8.5%|
*Labour only building or construction services means building or construction services where the materials costs supplied is less than 10% of relevant turnover from such services. If more than this amount, your business is classed as general building or construction services.
Lastly, Seek accountants advice if you have any questions about the VAT flat rate scheme.