VAT Flat Rate Scheme 2024 Guide

You want to run a business as tax-efficiently as possible. This guide will explain the VAT Flat Rate Scheme.

The following is a brief introduction to the topic:

VAT may seem to be just another aspect of running a business, adding to the administrative burden. As a small-business owner, you’re likely to want to run your company in the most tax-efficient way possible. VAT is one area where many business owners lose out.

You should be able to understand the basics, even if you have hired a small-business accountant.

We’ll explore a topic that is often raised by business owners, the  VAT flat rate scheme. We’ll go over the basics and touch on the recent regulatory changes, as well as answer frequently asked questions.

What is VAT?

We are all familiar with VAT (Value-Added Tax). VAT is a consumption tax that’s added to most products and services, both for B2C and B2B.

What is the VAT Flat Rate Scheme

Business owners can choose from a variety of VAT schemes. Small businesses are most likely to use the VAT flat rate and standard rate schemes.

You must subtract the VAT that you paid for the goods and services you purchased from the total VAT you charged your clients.

The difference between what you charge your clients and what you pay for your purchases is the VAT that you’ll be paying. You’ll need to maintain meticulous records, since you must keep track of every transaction and the VAT rate charged.

The VAT flat rate scheme simplifies the process. Instead of paying the difference between what you charge your customers and the VAT that you pay on your purchases, HMRC will give you a flat rate.

Small businesses with a low turnover can benefit from a VAT flat rate scheme. This will save them the trouble of keeping track of VAT on their purchases. Businesses must have a turnover of less than £150,000 (excluding VAT) to be eligible for schemes like this.

What you do will determine the amount of VAT that you pay under the flat-rate VAT scheme.

Below is a list of all the current flat rates for VAT.

The Gov.uk site also has more information about VAT schemes. This includes VAT retail schemes as well as other schemes. It also provides details on how you can pay VAT, claim VAT and much more.

Flat Rate VAT Percentages

• Accounting or bookkeeping services: 14.5%
• Advertising Businesses: 11%
• Agricultural services: 11%
• Other activities not listed: 12%
• Architects, structural engineers or civil engineers: 14.5%
• Boarding or caring for animals: 12%
• Business Services not listed anywhere else: 12%
• Before 15 July 2020, you can save 12.5% on all catering services including restaurants and take-outs
• Restaurants and take-outs between 15 July 2020 to 30 September 2021: 4%
• Catering services, including restaurants and take-away between 1st Oct 2020 to 31st Mar 2022: 8.5%

• Computer and IT consulting or data processing: 14%
• Computer repair services: 10.5%
• Entertainment or Journalism: 12.5%
• Estate agency and property management services: 12 %
• Agriculture or farming not listed anywhere else: 6.5%
• Film, radio or television production: 13%
• Financial services: 13.5%
• Forestry or fishing: 10%
• General construction or building services: 9.5%
• Hairdressing and other beauty treatments: 13%
• Renting or hiring goods: 9.5%
• Book your hotel or accommodation by 15 July 2020 and save 10%

• Hotel or accommodation after 30 September 2020: 0%
• Hotel or accommodation from 1 October 2021 to 31 March 2022: 5%
• Investigating or securing: 12%
• Construction or building services based solely on labour: 14.5%
• Dry-cleaning or laundry services: 12%
• Lawyer or legal service: 14.5%
• Libraries, archives, museums or other cultural activities: 9.5%
• Management consulting: 14%
• Manufacturing of fabricated metal products: 10%
• Manufacturing food: 9%
• Manufacturing Not Listed Elsewhere: 9.5%
• Textiles, clothing or yarn manufacturing: 9%
• Membership Organisation: 8%
• Mining or quarrying 10%
• Packaging: 9%
• Photography: 11%
• Post offices: 5%
• Printing: 8.5%
• Publishing: 11%
• Before 15 July 2020, you can save 6.5%
• From 15 July 2020 until 30 September 2021, pubs will receive a 1% discount
• Between 1 October 2021 and 31 March 2022, pubs will be 4% cheaper
• Real estate activity that is not included elsewhere: 14%
• Repairing household or personal goods: 10%
• Repairing vehicles: 8.5%
• Food, tobacco, tobacco products, newspapers, or children’s clothes: 4%
• Retailing cosmetics, toiletries, cosmetics, or medical products: 8%
• Retailing not included elsewhere: 7.5%
• Retailing of vehicles or fuels: 6.5%
• Secretarial services: 13%
• Social work: 11%
• Sports or recreation: 8.5%
• Transport or storage including freight, removals, taxis, and couriers: 10%
• Travel agency: 10.5%
• Veterinary Medicine: 11%
• Wholesale agricultural products: 8%
• Wholesale food: 7.5%
• Wholesalers not listed anywhere else: 8.5%

How does the VAT flat rate scheme work?

The VAT flat rate scheme allows businesses to charge the standard VAT rate on their sales, but pay HMRC at a rate that is lower based on the industry they are in. This simplified approach is intended to reduce the administrative burden for small businesses in complying with VAT.

VAT Flat Rate Scheme Eligibility

If you meet the following criteria, you can apply to join the Flat Rate Scheme:

• You’re VAT registered
• You expect your VAT-taxable turnover (excluding VAT), to be less than £150,000 in the next year

Exemptions:

The scheme is not applicable if you:

• You left the scheme within the last 12 months
• You committed a tax offence, such as evasion of VAT in the past 12 months
• You joined or were eligible to join a VAT group within the last 24 month
• You registered for VAT in the past 24 months as a division of your business
• Your business is closely related to another business
• You’ve signed up for a VAT margin scheme or capital goods scheme

How to apply for flat rate scheme

There are multiple ways to apply for a flat rate scheme:

You can either fill out the VAT 600 FRS or join online during VAT registration.

Be sure to identify the flat rate percentage that applies to your business before completing the VAT 600 form. You will need to include this in your application.

The VAT Flat Rate Scheme has many benefits

• Businesses can quickly calculate VAT using a flat-rate percentage.
• The VAT record is not required to be detailed, so it simplifies the process of keeping records.
• Accounting costs can be reduced by simplifying calculations.
• Cash flow management is easy for businesses.

Vax Inclusive Turnover (VAX) and VAT Taxable turnover

Businesses must accurately calculate their VAT inclusive and VAT taxable revenue to use the correct flat-rate percentage and to comply with VAT regulations in the UK.

VAT inclusive turnover is the total revenue received by an organisation, including all VAT. VAT taxable turnover is the total value of all sales by an enterprise that are VAT-eligible (excluding sales that are VAT-exempt or outside of the scope of VAT).

The Flat Rate Scheme simplifies the VAT calculation for eligible businesses by applying a flat percentage rate to their turnover including VAT to determine their tax liability.

How to leave the VAT flat rate scheme

The flat-rate VAT scheme is no longer available.

• Your turnover for the last 12 months (including VAT) exceeded £230,000 or you expect to exceed it in the next 12 months.
• Your total expected income for the next 30 calendar days is more than 230,000 £ (including VAT).

VAT Flat Rate Scheme Changes

HMRC implemented regulatory changes in April 2017, to combat abuse of the scheme and ensure all businesses pay the required tax.

The ‘limited-cost trader’ flat rate category was created to eliminate the cash advantage of businesses with low costs.

Tax Flat Rate for Limited Cost Traders

Your goods are classified as a “limited-cost business” if they cost less than:

• You can save 2% on your total turnover
• If your costs exceed 2 percent, you can save up to£1,000 per year.

If you are a “limited cost business”, you will be required to pay an increased rate of 16.5%. It is likely that this will affect many businesses who are primarily labour-only. If you’re unsure whether your business falls into this category, use the Gov.uk flat rate VAT calculator to find out.