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📘 About the Flat Rate VAT
Under the VAT Flat Rate Scheme you still charge your customers VAT at the normal rate, but you pay HMRC a fixed percentage of your VAT-inclusive turnover instead of working out output VAT minus input VAT. The percentage depends on your trade, and you get 1% off in your first year of VAT registration.
If you spend very little on goods you are a "limited cost trader" and must use 16.5%, which usually removes any benefit. You are a limited cost trader if your goods cost less than 2% of your VAT-inclusive turnover, or less than £1,000 a year. Pick your trade, enter your figures and see which method leaves you better off.
🧮 Formula
Rates as published by HMRC. You can join if your expected VAT-taxable turnover (excluding VAT) is £150,000 or less; you must leave above £230,000 including VAT.
✏️ Worked examples
IT consultant, £80,000 net
You get| VAT to pay HMRC under the Flat Rate Scheme (£) | 15,840 |
| Flat rate percentage used (%) | 16.5 |
| VAT to pay under normal VAT accounting (£) | 13,500 |
| Saving with the Flat Rate Scheme (£, negative = it costs more) | -2,340 |
| VAT charged that you keep (£) | 160 |
Goods under £1,000, so 16.5%: VAT due £15,840 vs £13,500 normally.
Try this example →Same, with £2,500 of goods
You get| VAT to pay HMRC under the Flat Rate Scheme (£) | 13,920 |
| Flat rate percentage used (%) | 14.5 |
| VAT to pay under normal VAT accounting (£) | 13,500 |
| Saving with the Flat Rate Scheme (£, negative = it costs more) | -420 |
| VAT charged that you keep (£) | 2,080 |
14.5% applies: VAT due £13,920 against £13,500 under normal VAT.
Try this example →🧭 How to use this calculator
What you enter
- Turnover for the year, excluding VAT (£)
- Your trade (HMRC flat rate category)
- First year of VAT registration?
- Spend on goods in the year, including VAT (£)Goods only — not services, rent, fuel, food or capital items. Used for the limited cost trader test.
- VAT you could reclaim on costs under normal VAT (£)For the comparison only.
- VAT rate you charge (%)
What you get
- VAT to pay HMRC under the Flat Rate Scheme (£)
- Flat rate percentage used (%)
- VAT to pay under normal VAT accounting (£)
- Saving with the Flat Rate Scheme (£, negative = it costs more)
- VAT charged that you keep (£)
💡 Limited cost trader test — what counts as goods
- Counts: stock, materials, stationery and office supplies, cleaning products, goods you resell.
- Does not count: services, rent, phone and internet, fuel and vehicle costs, food and drink for you or staff, capital expenditure such as laptops and equipment.
💡 When the scheme helps
- Businesses with few VAT-able costs and a trade percentage well below 16.5%.
- If you buy expensive equipment, normal VAT may be better because the scheme only lets you reclaim VAT on single capital purchases of £2,000 or more including VAT.
❓ Frequently asked questions
What is the VAT Flat Rate Scheme?
A simpler way for small businesses to pay VAT: you charge 20% as usual but pay HMRC a fixed percentage of your gross turnover based on your trade.
What is a limited cost trader?
A business whose spending on goods is less than 2% of VAT-inclusive turnover, or under £1,000 a year. It must use the 16.5% flat rate.
What is the flat rate for IT consultants?
14.5%, or 13.5% in the first year — but most IT contractors are limited cost traders and must use 16.5%.
Can I reclaim VAT on purchases under the Flat Rate Scheme?
Only on single capital assets costing £2,000 or more including VAT. Other input VAT is not reclaimed — it is built into the lower percentage.