VAT flat-rate vs standard scheme — which one pays less VAT.
The flat-rate scheme charges 20% VAT to customers but pays HMRC a fixed percentage of gross turnover. Depending on your sector and input VAT, it can save money — or cost more. Enter your figures and see both sides.
Standard scheme
- Sales VAT collected
- £12,000
- Input VAT reclaimed
- −£1,500
Flat-rate scheme
- Gross turnover incl. VAT
- £72,000
- × 14.5% flat rate
Difference doesn't factor in admin time, the hassle of reclaiming input VAT, or one-off capital purchases over £2,000 (which are reclaimable under flat-rate). Close calls should go through an accountant.
Scope: Uses the most common HMRC flat-rate categories (28 sectors). Doesn't model mid-year sector switches, partial exemptions, mixed supplies, or the capital goods scheme. First-year discount applies for the first 12 months after VAT registration. Limited-cost-trader status can change quarter-to-quarter; the calculator treats it as a static toggle.
A simpler admin trade, with a specific winner and loser.
Under the standard scheme, you charge 20% VAT on your sales, reclaim VAT on eligible business purchases, and pay HMRC the difference. Under the flat-rate scheme you still charge 20% VAT on sales but pay HMRC a fixed percentage of your VAT-inclusive turnover — and you don't reclaim input VAT (except on capital purchases over £2,000 incl VAT).
Flat-rate tends to win when your input VAT is low relative to turnover — service businesses, consultants, IT contractors. It tends to lose when you buy a lot of VAT-bearing goods — retailers, manufacturers, anyone handling stock. The 2017 limited-cost-trader rule pushed labour-only traders onto a harsher 16.5% rate, which wiped out most of the benefit for that group.
Beyond the headline number, the flat-rate scheme is genuinely simpler to administer — one calculation per quarter, no invoice-by-invoice input VAT tracking — and that saves real time. Whether that admin saving justifies a worse tax position depends on your own hourly rate and whether you have a bookkeeper already doing the work. An accountant will weigh both when advising.
A calculator gives a number. An accountant gives a plan.
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