SIMPLIFY YOUR VAT AFFAIRS - The flat rate VAT scheme is an incentive to help simplify taxes and means you charge VAT on your invoices at 20%, but only pay HM Revenue & Customs at a lower rate depending on your profession/trade (see table below).

The flat rate scheme is recommended for businesses that have very few VAT chargeable purchases and expenses i.e. limited purchases of stock, services etc.

The key eligibility condition for the scheme is that the business’s estimated annual turnover, excluding VAT, is below £150,000.

Companies on the flat rate scheme are unable to claim back any VAT on purchased goods and expenses for their business. You can however reclaim VAT on capital assets purchased over £2,000, for example a PC. Providing all the capital purchases are on the same receipt such as a PC, printer and screen you can claim the VAT back on all these items. You cannot however buy a PC one month for £1,500 then a printer the next month for £300 and the screen the month after for £200 and add them together; they must all be on the same receipt.

Like standard VAT, the flat rate scheme still requires you to complete a quarterly VAT return form (online only). You will need to charge the standard VAT rate, currently 20% on your invoices. However, rather than accounting for the VAT on every payment, when you do your quarterly report you will only pay a single flat rate percentage of your turnover for each quarter.

The VAT percentage you pay is considerably lower than that of the standard VAT rate and you keep the difference as your profit. See table below for a full list of the standard rates dependant on your profession (you can reduce the % by 1 in the first year of trading).

If you are using the cash-based turnover method, which allows you to account for your VAT liability when you receive payment, you just need to make sure your flat rate percentage is the rate that was in place at the time of supply and not the rate that is in place when payment is received.

Example a limited company specialising in IT:

Net amount you invoice your client£   £5,000

VAT charged to client at 20%                  £1,000

Gross Amount                                              £6,000

Flat rate VAT – 13.5%

VAT to be paid to HMRC

(13.5% of £6,000)                                        £810

VAT received from client                          £1,000

PROFIT                                                           £190


In addition to the ability to earn money from VAT, the level of paperwork is reduced as you are submitting only your input costs (VAT charged) to HMRC. All that is required is that you keep the receipts for your purchases.

If you buy lots of stock or have a level of high VAT chargeable expenses it is unlikely the scheme is beneficial for you. Alternative VAT schemes which may be of benefit to could be either the annual accounting scheme or cash accounting.

Using annual VAT accounting, you make nine monthly or three quarterly interim payments throughout the year and are only required to complete one VAT Return at the end of the year when you either make a balancing payment or receive a balancing refund.

The cash accounting scheme, unlike standard VAT accounting where VAT is due when you

issue an invoice, you don’t have to pay VAT until your customers pay you.

 Further details on these two schemes can be provided on request.


Category of Business               Appropriate Percentage  


Accountancy or book-keeping 14.5
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 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
Dealing in waste or scrap 10.5
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture that is 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 that is 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, confectionary, 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
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 that is not listed elsewhere 8.5



If you wish to discuss the flat rate scheme in more detail and whether it is appropriate for your business, please do not hesitate to contact Harbour Key Limited at or 01452 713277.