Overview of Flat Rate Scheme
Usually, how much VAT a business pays or claims back from HM Revenue and Customs (HMRC) is the difference between the VAT they charge customers and pay on their purchases.
With the Flat Rate Scheme:
- you pay a fixed rate of VAT over to HMRC
- you keep the difference between what you charge your customers and pay over to HMRC
- you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000
To join the scheme your VAT turnover must be less than £150,000 (excluding VAT) and you must apply to HMRC.
How to join
You can join the scheme:
- online – when you register for VAT
- by post – fill in VAT600 FRS and send it to the address on the form (or useVAT600 AA/FRS to apply for the Annual Accounting Scheme at the same time)
Confirmation you’ve joined the scheme is sent to your VAT online account (or in the post if you don’t apply online).
How to leave
You can leave the scheme at anytime, but you must leave if you’re no longer eligible to be in it.
To leave, write to HMRC and they will confirm when you can leave.
You must wait 12 months before you can rejoin the scheme.
HM Revenue and Customs
77 Victoria Street
You can join the Flat Rate Scheme if:
- you’re a VAT-registered business
- you expect your VAT taxable turnover to be less than £150,000 (excluding VAT) in the next 12 months
- VAT taxable turnover is the total of everything sold that isn’t VAT exempt.
You can’t use the scheme if:
- you left the scheme in the last 12 months
- you committed a VAT offence in the last 12 months, eg VAT evasion
- you joined (or were eligible to join) a VAT group in the last 24 months
- you registered for VAT as a business division in the last 24 months
- your business is closely associated with another business
- you’ve joined a margin or capital goods VAT scheme
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.
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)