Managing VAT can feel overwhelming for many UK business owners—especially freelancers, contractors, and small companies who would rather focus on clients than calculations. That’s exactly why HMRC introduced the Flat Rate VAT Scheme.
If you are looking for a simpler way to submit VAT returns in the UK, this guide explains how the Flat Rate VAT Scheme works in 2025, who it’s suitable for, and whether it could save you time or money.
What Is the Flat Rate VAT Scheme?
Under the standard VAT method, businesses must calculate:
- VAT charged to customers (output VAT)
- VAT paid on expenses (input VAT)
This requires tracking every invoice and receipt.
With the Flat Rate VAT Scheme, things are simpler. Instead of reclaiming VAT on most purchases, you:
- Charge customers the normal VAT rate (usually 20%)
- Pay HMRC a fixed percentage of your VAT-inclusive turnover
- Keep the difference
This makes VAT easier to manage and more predictable, especially for businesses with low expenses.
Who Can Use the Flat Rate VAT Scheme in the UK?
You can join the scheme if:
- Your VAT-taxable turnover is £150,000 or less (excluding VAT)
- You expect turnover to stay below £230,000 including VAT
The scheme is suitable for:
- Freelancers
- IT consultants
- Small service businesses
- Contractors
- Sole traders and limited companies
Who Cannot Join?
- Certain financial or investment services
- Closely linked VAT-registered businesses
- VAT offences in the last 12 months
How the Flat Rate VAT Scheme Works (Example)
HMRC assigns flat rate percentages based on your business type.
| Business Type | Flat Rate % |
|---|---|
| IT Consultancy | 14.5% |
| Catering | 12.5% |
| Retail | Varies |
New businesses get a 1% discount for the first 12 months
Example:
If your VAT-inclusive quarterly turnover is £30,000 and your flat rate is 14.5%:
- VAT paid to HMRC: £4,350
- VAT charged to customers: £5,000
- Difference kept: £650
Advantages of the Flat Rate VAT Scheme
- ✔ Simple VAT calculations
- ✔ Less bookkeeping and paperwork
- ✔ Predictable VAT payments
- ✔ Can be beneficial for low-expense businesses
- ✔ Fully compatible with Making Tax Digital (MTD)
Disadvantages to Consider
- ⚠ VAT on most expenses cannot be reclaimed
- ⚠ Not suitable for VAT-heavy businesses
- ⚠ Limited cost traders may pay higher rates
- ⚠ Turnover must be monitored carefully
How to Join the Flat Rate VAT Scheme
- Log into your HMRC VAT account
- Submit form VAT600FRS
Once approved, the scheme applies from your next VAT period.
When Should You Leave the Scheme?
You must leave if:
- Turnover exceeds £230,000 including VAT
You may choose to leave if:
- Your expenses increase
- Standard VAT becomes more cost-effective
- Your business structure changes
Get Expert Help with VAT Filing in the UK
Unsure whether the Flat Rate VAT Scheme is right for you?
- ✅ Individual VAT filing
- ✅ HMRC-recognised MTD VAT submissions
- ✅ UK-focused VAT support
- ✅ Simple, secure online VAT filing
Let 11TaxAssist handle your VAT so you can focus on growing your business.