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Guide to the Flat Rate VAT Scheme

The VAT process can be smooth sailing thanks to the Flat Rate VAT Scheme. Read our guide to find out how.

Life is hectic for limited company directors, so opportunities to ease your administrative burdens should be celebrated. With the introduction of the Flat Rate VAT Scheme, HMRC endeavoured to simplify that VAT process for contractors and help to save money.

We’ve put together a guide to help you better understand your options when it comes to VAT.

What is the Flat Rate VAT Scheme?

The Flat Rate Scheme is a simplified method for eligible businesses to work out their VAT liability by applying a fixed rate percentage, based on the trade or profession to the VAT inclusive turnover. Under this method any VAT reclaimable is restricted (except on capital equipment greater than £2000).

Is the Flat Rate VAT Scheme best for my company?

The scheme has its advantages, but depending on the unique workings of your company, may not be the best solution.  Any business who expects their turnover before VAT to be more than £150,000 should not join the scheme. Conversely, if your annual turnover is likely to be more than £230,000 including VAT in subsequent years, this will also render you ineligible to join.

If you join the Flat Rate VAT Scheme, you will not be able to claim any VAT back on business purchases or expenses, but it is possible to claim VAT back on capital assets where the total bill has been more than £2,000. You can claim for a selection of items, which adds up to this sum, but they must all be purchased at the same time and shown on the same receipt in order to qualify to reclaim VAT in these circumstances.

Flat Rate VAT rates (by industry)

The table below shows HMRC’s comprehensive list of VAT rates by industry:

Type of business Current VAT Flat rate (%)
Accountancy or book-keeping 14.5
Advertising 11
Agricultural services 11
Any other activity 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 & 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, confectionery, tobacco, newspapers or children’s clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing not listed elsewhere 7.5
Retailin vehicles or fuel 6.5
Secretarial services 13
Social work 11
Sport or recreation 8.5
Transport or storage, including couriers, freight, removals & taxis 10
Travel agency 10.5
Veterinary medicine 11
Wholesaling agricultrual products 8
Wholesaling food 7.5
Wholesaling not listed elsewhere 8.5

What do I need to do if I’m a member of the Flat Rate VAT Scheme?

Businesses using the Flat Rate Scheme must perform a test each quarter to confirm first if they meet the criteria as a limited cost trader. A limited cost trader is defined as one whose gross expenditure on relevant goods is either:

  • less than 2 % of their Vat inclusive turnover or
  • greater than 2% but less than £1000 per annum.

Goods do not include:

  • any services – which is anything that isn’t goods
  • expenses like travel and accommodation
  • food and drink eaten by yourself or your employee(s)
  • vehicle costs including fuel unless you are in the transport business using your own, or a leased vehicle
  • rent, internet, phone bills and accountancy fees
  • gifts, promotional items and donations
  • goods you will resell or hire out unless this is your main business activity
  • training and memberships
  • capital items for example office equipment, laptops, mobile phones and tablets

To check if you meet the criteria as a limited cost trader, you can try HMRC’s free tool.

Find out more

VAT can be a challenging subject, but the Nixon Williams team is here to help. To see how we can best advise you on VAT, you can call one of our best advice team at 01253 362062.

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