Flat Rate VAT Scheme 2025: Simplify VAT Calculations for Small Businesses

By Sharon Gillespie last modified: February 12, 2025

What is the Flat Rate VAT Scheme?

The Flat Rate VAT Scheme is a simplified method for small UK businesses to calculate and report VAT. Instead of tracking VAT on each transaction, eligible businesses pay a fixed percentage of their gross turnover (excluding VAT).

What Is VAT?

For a detailed explanation, please visit our article entitled What is VAT?. In short, VAT (Value-Added Tax) is added to most purchases in the UK - from everyday items to services. The standard rate is 20%.

As a VAT-registered business, you’re responsible for collecting VAT from your customers and then subtracting any VAT you’ve paid on business expenses. UK VAT returns are usually filed every quarter.

Introducing the New Flat Rate VAT Scheme

The Flat Rate VAT Scheme simplifies VAT reporting for small businesses. Each business category is assigned a fixed percentage applied to your annual turnover. This method can save time and money by eliminating the need to record VAT on every individual sale and purchase.

To see the applicable rates for different business categories, refer to the table below:

Business Type	VAT Rate %
Accountancy or book-keeping	14.50
Advertising	11.00
Agricultural services	11.00
Any other activity not listed elsewhere	12.00
Architect, civil and structural engineer or surveyor	14.50
Boarding or care of animals	12.00
Business services not listed elsewhere	12.00
Catering services including restaurants and takeaways	12.50
Computer and IT consultancy or data processing	14.50
Computer repair services	10.50
Entertainment or journalism	12.50
Estate agency or property management services	12.00
Farming or agriculture not listed elsewhere	6.50
Film, radio, television or video production	13.00
Financial services	13.50
Forestry or fishing	10.50
General building or construction services*	9.50
Hairdressing or other beauty treatment services	13.00
Hiring or renting goods	9.50
Hotel or accommodation	10.50
Investigation or security	12.00
Labour-only building or construction services*	14.50
Laundry or dry-cleaning services	12.00
Lawyer or legal services	14.50
Library, archive, museum or other cultural activity	9.50
Management consultancy	14.00
Manufacturing fabricated metal products	10.50
Manufacturing food	9.00
Manufacturing not listed elsewhere	9.50
Manufacturing yarn, textiles or clothing	9.00
Membership organisation	8.00
Mining or quarrying	10.00
Packaging	9.00
Photography	11.00
Post offices	5.00
Printing	8.50
Publishing	11.00
Pubs	6.50
Real estate activity not listed elsewhere	14.00
Repairing personal or household goods	10.00
Repairing vehicles	8.50
Retailing food, confectionery, tobacco, newspapers or children’s clothing	4.00
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8.00
Retailing not listed elsewhere	7.50
Retailing vehicles or fuel	6.50
Secretarial services	13.00
Social work	11.00
Sport or recreation	8.50
Transport or storage, including couriers, freight, removals and taxis	10.00
Travel agency	10.50
Veterinary medicine	11.00
Wholesaling agricultural products	8.00
Wholesaling food	7.50
Wholesaling not listed elsewhere	8.50

Source: HMRC VAT flat rates

A Simple Example

If a transport company has a flat rate of 10% and earns an annual turnover of £90,000, the VAT owed would be calculated as:

£90,000 x 10% = £9,000

With HMRC’s 1% discount for new VAT registrants, the effective rate becomes 9%, reducing the VAT payable to:

£90,000 x 9% = £8,100

This results in a saving of £900.

Eligibility for the Flat Rate VAT Scheme

To be eligible, your business must:

Be VAT registered
Have a predicted annual turnover of less than £150,000 (excluding VAT)

Criteria for Ineligibility

Your business may not qualify if you have:

Left the scheme in the last 12 months
Committed a tax-related criminal offence in the last 12 months
Joined or are eligible to join a VAT group in the last 24 months
Registered a business division for VAT in the last 24 months
Strong financial, economic, or organisational links to another business
Already joined a margin or capital goods VAT scheme

Pros & Cons of the Flat Rate VAT Scheme

Pros

Easy registration process
Flexibility to withdraw from the scheme at any time
Retain the difference between the standard 20% VAT charged and your flat rate
Simplified record keeping
Potential cost savings, including a 1% discount for new businesses

Cons

Inability to reclaim VAT on most purchases (except for qualifying capital assets over £2,000)
Limited cost businesses may incur a higher flat rate (e.g., 16.5%)
Complexity in business classification
Not ideal for businesses with high purchase volumes

Key Takeaways

The Flat Rate VAT Scheme simplifies VAT reporting by applying a fixed percentage to turnover.
Designed for VAT-registered small businesses with an annual turnover under £150,000.
Offers significant time and cost savings, particularly with a 1% discount available for new businesses.
Not suitable for businesses with high purchase volumes or those considered limited cost businesses.

In Summary

The new Flat Rate VAT Scheme provides small businesses with a streamlined approach to handling VAT, potentially reducing administrative burdens and saving money. However, it is crucial to evaluate your business’s specific needs and consult with an accountant before opting into the scheme.

For further assistance, try our VAT Calculator and explore additional VAT resources in our Articles section.

If you wish to register for the scheme, please visit our Register for VAT page. Indeed, there is much to consider. Business owners must carefully consider whether the flat rate VAT scheme is suitable for their needs, since some limitations and restrictions may make it less beneficial for some businesses. It is a good idea to discuss the pros and cons of the flat rate VAT scheme for your business with your accountant. You may sign up to the scheme by registering here, although do discuss it first with your accountant, as any decent accountant will be happy to perform this step on your behalf.