What is Flat Rate VAT Scheme? UK Definition 2026/27
Quick Answer
A simplified VAT scheme where you pay a fixed percentage of turnover to HMRC.
Definition of Flat Rate VAT Scheme
The Flat Rate Scheme is a simplified VAT accounting method for small businesses with VAT-taxable turnover under £150,000. Instead of calculating VAT on each sale and purchase, you pay a fixed percentage of your gross turnover based on your business type. This reduces admin but may not suit all businesses.
Flat Rate VAT Scheme — Key Facts for 2026/27
| Turnover limit | £150,000 |
| FRS rates | 4%-16.5% by sector |
| First year discount | 1% reduction |
| Limited cost trader | 16.5% rate |
How Flat Rate VAT Scheme Works — Example
- 1Gross turnover: £50,000
- 2FRS rate (IT contractor): 14.5%
- 3VAT to pay: £50,000 × 14.5% = £7,250
- 4VAT charged to clients: £10,000 (20%)
- 5Difference retained: £2,750
How Flat Rate VAT Scheme Affects Your Tax
FRS can be beneficial if your expenses are low, as you keep the difference between VAT charged and flat rate paid. However, limited cost traders (goods under 2% of turnover) pay 16.5%, eliminating the benefit.
Official HMRC Guidance on Flat Rate VAT Scheme
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: VAT Flat Rate SchemeFrequently Asked Questions about Flat Rate VAT Scheme
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.