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What is the Flat Rate Scheme (FRS)

Businesses that have a VAT taxable turnover of over £81,000 under HMRC’s rules must register for VAT. Those with a turnover which does not exceed the £81,000 threshold can still voluntarily register for VAT. By being VAT registered, even though there is additional administrative hassle of having to charge the relevant VAT on your sales, it is possible to claim back any input VAT on the purchases made in relation to your sales.


Under the standard VAT registration, you will file quarterly (or monthly) VAT returns. On these returns you will compare your output VAT against your input VAT and ultimately work out what VAT is payable to HMRC or due as a refund. To simplify things, the Flat Rate Scheme (FRS) was introduced and is where you pay VAT at a pre-determined percentage of you VAT inclusive turnover. This percentage is dependent on the type of business that you operate.

Advantages of the Flat Rate Scheme

  • You won’t have to account to VAT on every sale
  • Less chance of error as you apply only one VAT percentage
  • Fewer rules to follow and less admin
  • A 1% deduction in the VAT percentage applied to your sales in the first year of being VAT registered.

Disadvantages of the Flat Rate Scheme

  • The inability to reclaim input VAT
  • You no longer receive VAT repayments as you would have done under the standard VAT scheme.

In order to qualify for the FRS, your taxable turnover must not exceed £150,000 and you can stay in the FRS as long as your sales remain below £230,000. As soon as your taxable turnover exceeds this amount you will have to exit the FRS and return to the normal standard VAT accounting procedure.

A few examples of the flat rate percentages that apply are as follows:

  • Accountancy or book-keeping – 14.5%
  • Hotel or accommodation – 10.5%
  • Food Manufacturing – 9%

The remaining services and the applicable rates can be found on http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5.

If you want to find out more about VAT or the FRS, please contact our dedicated VAT specialists on 020 8429 9245.

Disclaimer – rates correct at the time of writing – August 2014