Different VAT Schemes in the UK: A Simple Guide for Businesses & Freelancers

VAT doesn’t have to be complicated. If you’re registered for VAT in the UK, choosing the right VAT scheme can save time, improve cash flow, and reduce admin stress.

Whether you’re a freelancer, small business owner, or a growing company, HMRC offers several VAT schemes designed for different business needs. Some focus on simplicity, while others help with cash flow management.

Let’s break down the main UK VAT schemes in clear, simple terms 👇

What Is Standard VAT Accounting?

Standard VAT accounting is the default VAT method in the UK.

1. Charge VAT on your sales
2. Reclaim VAT on eligible business purchases
3. Submit a VAT return every quarter

You must pay VAT to HMRC as soon as you issue an invoice — even if your customer hasn’t paid yet.

Who is Standard VAT Best For?

1. Businesses with reliable, on-time customers
2. Companies reclaiming VAT on stock or equipment
3. Businesses with steady cash flow

If late payments regularly affect your cash flow, another VAT scheme may be a better fit.

Flat Rate VAT Scheme (Simple & Time-Saving)

The Flat Rate VAT Scheme is popular with freelancers and small businesses who want simpler VAT reporting. For a complete breakdown of rates, examples, pros & cons, read our full guide: Flat Rate VAT Scheme UK 2025 – Rules, Benefits & Is It Right for You .

1. Charge customers the standard VAT rate
2. Pay HMRC a fixed percentage of turnover

Eligibility

VAT-taxable turnover must be £150,000 or less (excluding VAT).

Key Points

1. Different rates for different industries
2. Limited VAT reclaim on purchases
3. Less paperwork

✔️ Best for businesses with low VAT expenses
❌ Not ideal if you regularly reclaim VAT

VAT Margin Scheme (Second-Hand & Specialist Goods)

Ideal for sellers of second-hand goods, antiques, art, or collectables.

1. VAT charged only on profit margin
2. No VAT charged on full selling price
3. Detailed records required

✔️ Great for resellers and traders
❌ Not suitable for standard retail or service businesses

VAT Annual Accounting Scheme

This scheme reduces admin by allowing:

1. Advance quarterly VAT payments
2. One VAT return per year

✔️ Fewer VAT returns
✔️ Predictable payments
❌ Less flexible if income changes often

VAT Retail Schemes

Retailers can simplify VAT using HMRC-approved retail schemes that calculate VAT using averages instead of per sale.

1. Point of Sale Scheme
2. Apportionment Scheme
3. Direct Calculation Scheme

Large retailers with turnover over £130 million must agree a bespoke scheme with HMRC.