The VAT Flat Rate Scheme is a simplified way for small businesses to account for VAT. Instead of tracking VAT on every purchase and sale, you pay HMRC a fixed percentage of your VAT-inclusive turnover. The percentage depends on your trade sector.
Who can join?
You can apply if your VAT taxable turnover is £150,000 or less (excluding VAT). You must leave if income exceeds £230,000. In your first year of VAT registration you usually get a 1% reduction on your flat rate.
How it works
You still charge customers the normal VAT rate (usually 20%) on invoices. You then apply your sector flat rate to the gross (VAT-inclusive) total and pay that amount to HMRC. You generally cannot reclaim VAT on purchases, except on a single capital asset of £2,000 or more (including VAT).
Watch the 16.5% limited cost trader rate — if goods cost less than 2% of turnover (or under £1,000 a year) you may have to use it, which often removes the benefit of the scheme.
Use the Flat Rate VAT calculator to add 20% to invoices, then apply your sector percentage. Or start with the main VAT calculator.
Official guidance: GOV.UK Flat Rate Scheme.
Last reviewed August 2026. Confirm your sector percentage with HMRC or your accountant.
