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VAT Flat Rate Scheme

What is the VAT Flat Rate Scheme (FRS)?

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Usually, how much VAT a business pays or claims back from HM Revenue and Customs (HMRC) is the difference between the VAT they charge customers and pay on their purchases. However with the Flat Rate Scheme you only pay a fixed rate of VAT to HMRC. You can join the scheme if your annual taxable turnover (excluding VAT) will be £150,000 or less; and your annual total turnover (including VAT) will be £187,500 or less.

The VAT rate you pay under the VAT Flat Rate Scheme is determined by what industry you fall under. The below graphic demonstrates an example of someone working within a Labour-only building or construction services industry at a tax rate of 14.5%.

Standard Vat Calculation v Flat Rate Scheme Calculation

Standard VAT calculation

Total billings - £50,000
Output VAT @ 20% - £10,000
Total invoiced - £60,000

VAT reclaimed through purchases - £750

£10,000 - £750 = £9,250

Total payable to HMRC: £9,250

Flat rate scheme calculation

Total billings - £50,000
Output VAT @ 20% - £10,000
Total invoiced - £60,000

Total payable to HMRC is 14.5% of £60,000

14.5% of £60,000 = £8,700

Total payable to HMRC: £8,700


Please see the table below to establish what tax percentage you fall under within your industry under the FRS scheme. An extra benefit is that, during the first year your business joins the scheme, the flat rate percentage you apply is reduced by 1%.

VAT Flat Rate Scheme Industry Table.

Type of business VAT flat rate (%)
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 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
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture 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 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, confectionery, tobacco, newspapers or children's clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing 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
Waste or scrap dealing 10.5
Wholesaling agricultural products 8
Wholesaling food 7.5
Wholesaling not listed elsewhere 8.5

Here at Elite Financial accounting we often recommend a VAT Flat Rate Scheme can we extremely beneficial to your limited company for tax savings. Read a free guide on this here.

Other Benefits Using a VAT FRS?

The Flat Rate VAT scheme was introduced in 2002 and is available to all small businesses or sole proprietorships. Companies with low purchases and expenses can often achieve a financial saving and it can also help to simplify VAT calculations and record keeping removing the need to keep a record of VAT charged for each individual sale or that paid on purchases.

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