Should I use the VAT flat rate scheme?

The flat rate scheme for VAT is a simplified scheme that allows businesses to apply a fixed percentage to their turnover to calculate tax liability. The main benefit of the flat rate scheme is its simpleness, the record-keeping for your VAT return is easier. 

To be eligible to use the scheme you must be VAT registered and your VAT taxable turnover must not exceed £150,000. Businesses must consider that VAT taxable turnover may be different to annual business turnover. 

VAT taxable turnover is the total of your sales that are not VAT exempt. If you sell goods and services of which some are standard rated and some are exempt, you must consider this when calculating VAT taxable turnover. Zero-rated sales are included in your VAT taxable turnover. 

There are some exceptions which mean you cannot use the scheme; these can be found on HMRC’s website and include if you have left the flat rate scheme in the last 12 months. 

The percentage that you apply to your income depends on the type of business. In your case, the two relevant categories are: 

• General building or construction services - 9.5% 
• Labour-only building or construction services - 14.5% 

Labour-only services is where the value of materials supplied by business is less than 10% of the turnover of those services. Otherwise, the business is general services. If you are in the first year of being VAT registered, you will get a 1% discount. 

When it comes to preparing your VAT return and paying your VAT liability, the VAT you pay under the Flat Rate scheme is your fixed rate % multiplied by the gross (VAT inclusive) amount of your sales. You do not need to account for any input VAT on purchases on your VAT return or factor these into your liability like you would under the standard VAT system. 

How TaxAssist Accountants can help 

If you are considering using a VAT scheme or need to register your business for VAT, speak to one of our friendly experts. Call your local team today on 01642 614022 or use our online contact form. 

Date published 3 Jul 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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