Answers · UK 2025/26
What is the UK VAT Flat Rate Scheme?
The VAT Flat Rate Scheme lets small businesses (turnover under £150,000) pay a fixed percentage of gross turnover as VAT instead of tracking input/output VAT. Sectors range 4% (food retail) to 14.5% (consulting). Includes a 1% discount in your first year.
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UK VAT Flat Rate Scheme (FRS) 2025/26. Eligibility: VAT-registered businesses with VAT-exclusive turnover below £150,000 in the next 12 months. Must leave when turnover (inclusive of VAT) exceeds £230,000. How it works: still charge customers 20% standard rate, but pay HMRC a fixed flat-rate percentage of your gross (VAT-inclusive) turnover. You generally cannot reclaim input VAT (except on capital purchases above £2,000). Sector rates 2025/26: food retail 4%, agriculture 6.5%, manufacturing 9.5%, IT services 14.5%, management consultancy 14.5%, legal services 14.5%. Limited cost trader: from April 2017, if your goods spend is less than 2% of turnover (or less than £1,000/year), you must use the 16.5% rate regardless of sector — punishing service businesses. New trader bonus: 1% discount on your sector rate during your first year of VAT registration. Worked example (IT consultant, £80,000 turnover excluding VAT). Charge: £80,000 × 20% = £16,000 VAT. Year 1 FRS (limited cost 16.5% − 1% = 15.5%): pay £96,000 × 15.5% = £14,880. Standard scheme: would owe £16,000 minus reclaimable input VAT. FRS only suits low-input-VAT services if sector rate is favourable. Many "limited cost traders" exit FRS post-2017.
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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.