Online Calculators since 2009
The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.
So with the Flat Rate Scheme:
Single purchase examples include:
If bought as one package is one purchase of capital expenditure goods.
Items of kitchen equipment bought for a restaurant:
If all the items are from one supplier at one time, then they count as one purchase of capital expenditure goods. If they are from three different suppliers or at three different times then they will be three purchases and each must be £2,000 or more (Inc. VAT) to qualify for a reclaim of VAT
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
Confirmation will be sent from the HMRC you’ve joined the scheme through your VAT online account (or in the post if you don’t apply online).
You can choose to leave the scheme at any time. You must leave if you’re no longer eligible to be in it.
To leave, write to HMRC and they will confirm your leaving date.
There is a 12-month cooling off period before you can re-join the scheme.
You can join the Flat Rate Scheme if:
You can’t use the scheme if:
You can’t use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash based method for calculating the turnover.
You must leave the scheme if:
The VAT flat rate you use usually depends on your type of business. You may pay a different rate if you only spend a small amount on goods.
You get a 1% discount if you’re in your first year as a VAT-registered business.
If you spend a small amount on goods you are classed as a ‘limited cost business’ if your goods cost less than either:
This means you pay a higher rate of 16.5%. You can make the calculation to see if you need to pay the higher rate. You can and work out which goods count as costs.
If you aren’t a limited cost business, you use your business type to work out your flat rate.
You calculate the tax you pay by multiplying your VAT flat rate by your ‘VAT inclusive turnover’.
For example if you bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.
You run a takeaway so the VAT flat rate for your business is 12.5%.
Your flat rate payment will be 12.5% of £1,200, or £150.
VAT inclusive turnover is different from standard VAT turnover. As well as business income (such as from sales), it includes the VAT paid on that income.
A list of flat rates for different types of business can be found on the HMRC website