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VAT: Optional flat rate scheme

What is the flat rate scheme and will it benefit your business? We look at the trades it applies to and how much VAT you'd have to pay

VAT is something that most people find more than a little confusing. 

The optional flat rate scheme allows businesses with up to £150,000 turnover to make a flat-rate calculation for VAT payments based on turnover, rather than having to record the VAT of every sale and purchase.

As the name implies, it isn't compulsory for businesses to join the scheme but the idea is that it will reduce the administration burden on small businesses.

In most cases the business can work out the net VAT due to HM Revenue & Customs by recording their tax inclusive turnover and applying the appropriate flat rate percentage for their trade sector to total income. And that is the amount of VAT paid.

Once signed up to the flat rate scheme, your small businesses can remain in it until your income exceeds £230,000.

Trade sectors and their flat rate VAT percentages

The flat rate percentages by trade sector are as follows:

Type of business Current 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, confectionary, tobacco, newspapers or children’s clothing 4%
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%

* Based on the value of materials supplied, which has to be less than 10% of the turnover for those services. If it is more than this the business is classed as ‘General building or construction services'.

Source: VAT flat rate scheme

Remember, though, that if you are making supplies to other VAT registered businesses, you give them a VAT invoice charging VAT at the normal rate for the supply (not the flat rate percentage).

An example of how the flat rate scheme works

A photographer undertakes portraits for unregistered private customers and also does commercial photography work.

In a VAT period, the commercial work amounts to £10,000 and the photographer will issue an invoice for £12,000 (£10,000 plus VAT at 20%). The portrait work undertaken raises £7,500 including VAT.

During the course of the VAT period the photographer will not have to record any purchases or expenses relating to the work done.

At the end of the period, to work out the net VAT due, he adds the gross sales in the period, which in this case comes to £19,500, (£12,000 commercial £7,500 private).

He multiplies that figure by the flat rate percentage for photography businesses of 11% (19,500 x 0.11). The resulting amount of £2,145 will be the figure the photographer will have to pay HM Revenue & Customs.

If your business falls into more than one trade sector, you must use the percentage that applies to the part of the business that is set to generate the greater turnover in the year ahead.

Joining procedure for the flat rate scheme

There are a few exceptions but overall the scheme is open to most small businesses.

To check whether you are eligible and to see the joining procedure go to HM Revenue & Customs' website, which answers frequently asked questions. You can download a form to apply for it here.


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