Glossary · UK
What is VAT Flat Rate Scheme?
Simplified VAT for small businesses — pay a fixed % of gross turnover instead of accounting for input VAT.
Full Definition
The Flat Rate Scheme (FRS) lets VAT-registered businesses with annual taxable turnover up to £150,000 (excluding VAT) pay a flat percentage of their gross (VAT-inclusive) turnover to HMRC instead of tracking input VAT on purchases. Rates depend on trade — e.g. 14.5% for IT consultants, 12% for management consultants, 11% for accountancy. «Limited cost businesses» (goods spend below 2% of turnover or below £1,000/year) pay 16.5%, which usually wipes out any benefit. You still charge customers 20% VAT and can reclaim VAT on single capital purchases over £2,000. New joiners get a 1% discount in their first year. Leave once turnover exceeds £230,000.