Answers · UK 2025/26
When is the UK VAT Flat Rate Scheme cheaper than standard VAT?
FRS is usually cheaper for service businesses with low input VAT (consultancy, IT, marketing). For businesses with high VATable purchases (retail, manufacturing) standard VAT is cheaper because you reclaim more input VAT.
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UK VAT Flat Rate Scheme vs standard VAT 2025/26. IT consultancy £80k turnover, £1.2k input VAT. Standard: output £16k − input £1.2k = £14.8k due. FRS limited cost trader (16.5%): £96k × 16.5% = £15.84k. Standard wins by £1k. Retail £100k turnover, £6k input VAT. Standard: £20k − £6k = £14k due. FRS retail sector (7.5%): £120k × 7.5% = £9k. FRS wins by £5k. Decision rule: if input VAT > (20% − FRS sector rate) × ex-VAT turnover, standard wins. Year-1 FRS bonus: 1% discount on sector rate.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.