UK VAT Flat Rate Scheme Calculator

The VAT Flat Rate Scheme is an HMRC simplification scheme for businesses with VAT-exclusive turnover under £150,000. Instead of tracking input VAT on every purchase, you pay HMRC a fixed percentage of your VAT-INCLUSIVE turnover. The percentage depends on your industry — 14.5% for IT/accountancy/legal, 9.5% for general construction, 4% for food retail, etc. You still charge customers 20% VAT, but keep the difference between what you collect and the FRS percentage.

FRS is generally best for service-led businesses with low VATable purchases — IT consultants, lawyers, accountants, copywriters, designers — because they reclaim little input VAT under the Standard scheme. The 1% first-year discount makes it especially attractive in year one of VAT registration. It's a poor fit for retail, manufacturing, or any business with substantial VAT on stock, equipment, or supplier invoices.

From 1 April 2017, HMRC introduced the Limited Cost Trader (LCT) test to stop service-only businesses gaming low FRS rates. If your annual spend on relevant goods (not services, not capital, not food/drink for staff, not fuel except for transport businesses) is less than 2% of VAT-inclusive turnover OR less than £1,000 per year (whichever is greater), your FRS rate becomes 16.5% — almost always worse than the Standard scheme. Most service consultants are caught by this rule.

If you join the Flat Rate Scheme within 12 months of your VAT registration date, HMRC reduces your applicable percentage by 1 percentage point for the first 12 months. So an IT consultancy on the 14.5% rate pays 13.5% in year one. The discount runs from your VAT registration date, not your FRS join date — so registering more than 12 months before joining FRS forfeits the discount entirely.

You must leave the FRS at your scheme anniversary if your total income (including VAT) over the previous 12 months has exceeded £230,000. HMRC may permit you to stay if you can demonstrate that your total income for the next 12 months will be below £191,500 incl VAT. You must also leave immediately if the next 30 days alone will exceed £230,000.

It depends on your input VAT relative to net turnover. The break-even point for IT/accountancy at 14.5% is about 2.6% — if you reclaim less than 2.6% of net turnover in input VAT under Standard, FRS pays HMRC less. For retail at 4%, the break-even is much higher at 15.2%. Use this calculator with your actual annual input VAT to see which scheme costs less for your situation.