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The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

With the Flat Rate Scheme:

• you pay a fixed rate of VAT to HMRC
• you keep the difference between what you charge your customers and pay to HMRC
• you cannot reclaim the VAT on your purchases - except for certain capital assets over 拢2,000

You may be able to join the scheme if your VAT turnover is 拢150,000 or less (excluding VAT).

To join the scheme you must apply to HMRC.

Talk to an accountant or tax adviser if you want advice on whether the Flat Rate Scheme is right for you.

You can join the Flat Rate Scheme if:

• you鈥檙e a VAT-registered business
• you expect your VAT taxable turnover to be 拢150,000 or less (excluding VAT) in the next 12 months

Exceptions

You cannot join the scheme if:

• you left the scheme in the last 12 months
• you committed a VAT offence in the last 12 months, for example VAT evasion
• you joined (or were eligible to join) a VAT group in the last 24 months
• you registered for VAT as a business division in the last 24 months
• your business is closely associated with another business
• you鈥檝e joined a margin or capital goods VAT scheme

You cannot use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash-based method for calculating turnover.

You must be eligible to join the Flat Rate Scheme.

How to join the scheme depends on whether you鈥檙e registered for VAT or not.

If you鈥檙e not registered for VAT

You should register for VAT and join the Flat Rate Scheme at the same time. You can also register for the VAT Annual Accounting Scheme. You鈥檒l be told how to join the schemes when you register.聽

If you鈥檙e already registered for VAT

Apply to join the Flat Rate Scheme online or by post.

If you want to join the VAT Annual Accounting Scheme you will need to do this separately.

After you apply

You鈥檒l get confirmation that you鈥檝e joined the scheme:

• sent to your VAT online account - if you applied online
• in the post - if you applied using a paper form

The VAT flat rate you use usually depends on your business type. You may pay a different rate if you only spend a small amount on goods.

You get a 1% discount if you鈥檙e in your first year as a VAT-registered business.

If you spend a small amount on goods

You鈥檙e classed as a 鈥榣imited cost business鈥� if your goods cost less than either:

• 2% of your turnover
• 拢1,000 a year (if your costs are more than 2%)

This means you pay a higher rate of 16.5%. You can and work out which goods count as costs.

If you are not a limited cost business, you use your business type to work out your flat rate.

Flat rates for types of business

*鈥楲abour-only building or construction services鈥� means building services where the value of the materials supplied is less than 10% of the turnover for those services. If more than this amount, the business is classed as 鈥楪eneral building or construction services鈥�.

What you pay

You calculate the tax you pay by multiplying your VAT flat rate by your 鈥�VAT inclusive turnover鈥�.

Example

VAT inclusive turnover is different from standard VAT turnover. As well as business income (such as from sales), it includes the VAT paid on that income.

Calculating 2 flat rates

The first calculation should start from day one of your accounting period to the last day of that flat rate. The second should start from the date of the new flat rate to the end of your accounting period.

Get help

Call the VAT Helpline if you have any questions about the Flat Rate Scheme.

You must leave the scheme if:

• you鈥檙e no longer eligible to be in it
• on the anniversary of joining, your turnover in the last 12 months was more than 拢230,000 (including VAT) - or you expect it to be in the next 12 months
• you expect your total income in the next 30 days alone to be more than 拢230,000 (including VAT)

You can choose to leave the scheme at any time. You must leave if you鈥檙e no longer eligible for the scheme.

After you leave, you must wait 12 months before you can rejoin the scheme.

How to leave

To leave the scheme, contact HMRC with the following information:

• your name
• your signature
• your VAT number
• your business name and address

HMRC will then confirm your leaving date.

Contact HMRC

You can contact HMRC by email, phone or post.

To contact HMRC by post, send your letter to the following address. You must sign it first.