VAT-registered sole traders & small businesses
VAT Flat Rate Scheme calculator: is it worth it?
On the Flat Rate Scheme you still charge your customers 20% VAT, but you pay HMRC a single flat percentage of your gross (VAT-inclusive) turnover and keep the difference. Put your figures in below to see what you'd hand over, whether the 16.5% limited-cost rate catches you, and whether the flat rate actually beats the standard scheme for your business.
Work out your Flat Rate Scheme VAT
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How the Flat Rate Scheme actually works
Normally you pay HMRC the VAT you charged customers (output VAT) minus the VAT on your purchases (input VAT). The Flat Rate Scheme replaces that sum with one step: you apply a single percentage — set by HMRC for your type of business — to your VAT-inclusive turnover, and that's what you owe. You still charge customers the normal 20%, and the gap between the 20% you collected and the flat rate you pay is yours to keep.
The limited-cost-trader trap
Since 2017, if you spend very little on goods you must use a flat rate of 16.5% — no matter what your sector rate would have been. You're a "limited cost business" if your goods cost less than 2% of your turnover, or less than £1,000 a year. That rate is high enough that the scheme usually stops being worthwhile for consultants, IT contractors and other low-goods service businesses. The calculator flags this automatically.
You generally can't reclaim VAT on purchases while you're on the Flat Rate Scheme (one exception: capital assets costing £2,000 or more, including VAT). If you buy a lot with VAT on it, the standard scheme is often cheaper — the comparison above shows which way it falls for you.
Can you use the scheme?
- You can join if your VAT taxable turnover is £150,000 or less (excluding VAT) in the next 12 months.
- You must leave once your turnover goes over £230,000 (including VAT), or you expect it to.
- The 1% discount applies for your whole first year as a VAT-registered business.
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Common questions
Is the VAT Flat Rate Scheme worth it?
It depends on two things: your sector's flat rate and how much VAT you'd otherwise reclaim on purchases. If you buy little with VAT on it, the flat rate can leave you keeping some of the VAT you charged. But if you're a "limited cost business" you're pushed onto the 16.5% rate, which usually wipes out the benefit. Put your figures into the calculator above and it shows the flat-rate bill next to the standard-scheme bill.
What is a limited cost business?
You're a limited cost business if the goods you buy cost less than either 2% of your VAT-inclusive turnover, or less than £1,000 a year. "Goods" is narrow — it excludes services, food and drink, capital items like laptops, and anything bought to resell or hire out. Limited cost businesses must use a flat rate of 16.5%.
Do I still charge my customers 20% VAT on the Flat Rate Scheme?
Yes. You charge and show VAT on your invoices at the normal rate — usually 20%. The flat rate only changes how much of that VAT you hand to HMRC. You keep the difference between the 20% you collected and the flat-rate amount you pay, which is why the scheme can be worth money to low-cost businesses.
What flat rate percentage should I use?
HMRC sets a rate for each type of business, published at gov.uk/vat-flat-rate-scheme/how-much-you-pay — for example 14.5% for management consultancy or 12% for "any other activity not listed elsewhere". Enter your sector's rate in the calculator. If you're a limited cost business, the tool overrides it with 16.5% for you.
What is the 1% first-year discount?
In your first year as a VAT-registered business you take 1% off your flat rate — so a 12% rate becomes 11% for that year. Tick the box in the calculator to apply it. It comes off whatever rate you're on, including the 16.5% limited-cost rate.
Can I reclaim VAT on the Flat Rate Scheme?
Generally no — the flat rate is meant to account for the VAT on your purchases in one number. The main exception is capital assets costing £2,000 or more including VAT, where you can reclaim the VAT separately. If you buy a lot with VAT on it, run the comparison above; the standard scheme is often cheaper.
How much turnover can I have on the scheme?
You can join if your VAT taxable turnover is £150,000 or less (excluding VAT) over the next 12 months, and you must leave once your total turnover goes over £230,000 including VAT, or you expect it to in the next 30 days.
The VAT is the easy part — it's the rest of the admin that eats your time
Whichever VAT scheme you're on, you still have to track what you've invoiced, chase what's overdue, and work out your Income Tax and Class 4 NIC on top. Any surplus you keep from the Flat Rate Scheme is taxable profit, so it lands in your Self Assessment too. Our MTD Toolkit does all of that in spreadsheets that actually calculate.
- Self Assessment Tax Estimator 2026/27 — your whole Income Tax and Class 4 NIC bill, including the profit you keep from the Flat Rate Scheme.
- Freelancer Invoice Tracker & Log — net, VAT and gross on every line, with Paid / Outstanding / Overdue totals updating automatically.
- Freelance Day-Rate & Profit Calculator — set a rate that still works after VAT and tax.
- Rental Property ROI & Yield Calculator — for anyone with a buy-to-let too.
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