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VAT flat rate scheme: the basics

Value added tax (VAT) is one of the most complex tax regimes for businesses to deal with.

The amount of VAT you pay or claim back from HMRC is the difference between the VAT charged by the business and the VAT the company pays.

The VAT flat rate scheme allows businesses to pay a fixed rate of VAT to HMRC while keeping the difference between charged payments. However, in most cases businesses are not able to reclaim VAT on purchases. 

In this blog post we briefly explain the scheme and how it can help your business.

What is the flat rate scheme?

The scheme is designed to simplify sales and purchases by applying a fixed flat-rate percentage to your gross (VAT) turnover. 

The flat rate depends on the type of business you’re running.

How to join

Before joining the scheme your business must be VAT-registered and expecting a taxable turnover of £150,000 or less (excluding VAT) in the next 12 months.

You can join the scheme either online via the HMRC website or by post - filing in VAT600 FRS.

You can leave the scheme at any time; however it will be a 12 month wait before you can re-join the scheme.

You’re unable to use the scheme if you left in the last 12 months, committed a VAT offence or joined another VAT group within the last 24 months. 

We can advise in detail on eligibility for the flat rate scheme. 

How much to pay

The VAT flat rate is the percentage of your flat rate turnover – this includes the VAT paid on business income.

The VAT rate will depend on the type of business you’re running. If the rates change you must apply the new rate from the date change. Visit the HMRC site for updated rates.

If your business has been VAT-registered for 1 year, you’ll need to reduce the VAT flat rate by 1%.  This rate will last until your registration anniversary.

Get in touch

Do you think the flat rate scheme will benefit your business? Speak to an adviser today to find out how we can help you with the scheme.