VAT Flat Rate Scheme Calculator
Find out whether the VAT Flat Rate Scheme saves you money compared to standard VAT — and how much you’d pay to HMRC each quarter.
Your Business
Your flat rate: —
£
£0£200k
Your sales revenue before adding VAT
£
£0£30k
Total VAT you pay on business purchases per year — used to calculate your standard VAT bill
£
£0£20k
Physical goods only (stock, materials, equipment). Not services, rent, software or fuel. Used for the limited cost trader test.
First year of VAT registration? (1% discount applies)
⚠️ Limited Cost Trader
Your annual spend on goods (inc. VAT) is less than 2% of your gross turnover or under £1,000. HMRC classes you as a limited cost trader, meaning you must use the 16.5% flat rate regardless of your sector. This significantly reduces the benefit of the Flat Rate Scheme for most service businesses.
Your annual spend on goods (inc. VAT) is less than 2% of your gross turnover or under £1,000. HMRC classes you as a limited cost trader, meaning you must use the 16.5% flat rate regardless of your sector. This significantly reduces the benefit of the Flat Rate Scheme for most service businesses.
Your VAT Comparison
—
Option 1
Flat Rate Scheme
Gross turnover (inc. VAT)—
Flat rate applied —
VAT collected from clients—
Annual VAT to HMRC
—
—
Option 2
Standard VAT
Output VAT charged (20%)—
Input VAT on purchases—
Annual VAT to HMRC
—
—
Quarterly Breakdown
Per Quarter — FRS
—
due to HMRC
Per Quarter — Standard
—
due to HMRC
Quarterly Saving
—
with better scheme
How the Flat Rate Scheme Works
What is it?
Instead of calculating VAT on every sale and purchase, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. The rate depends on your business sector. You still charge customers VAT at 20% as normal.
Instead of calculating VAT on every sale and purchase, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. The rate depends on your business sector. You still charge customers VAT at 20% as normal.
Who benefits?
The scheme works best for service businesses with low costs — consultants, freelancers, and professionals. You keep the difference between the 20% VAT you charge and the lower flat rate you pay HMRC.
The scheme works best for service businesses with low costs — consultants, freelancers, and professionals. You keep the difference between the 20% VAT you charge and the lower flat rate you pay HMRC.
Limited cost trader rule
If you spend less than 2% of your gross turnover on goods (or under £1,000 per year), HMRC classes you as a limited cost trader and you must use the 16.5% flat rate. This applies to most consultants and freelancers.
If you spend less than 2% of your gross turnover on goods (or under £1,000 per year), HMRC classes you as a limited cost trader and you must use the 16.5% flat rate. This applies to most consultants and freelancers.
First year discount
In your first year as a VAT-registered business, you get a 1% reduction on your flat rate. For example, a 14.5% rate becomes 13.5% for the first 12 months.
In your first year as a VAT-registered business, you get a 1% reduction on your flat rate. For example, a 14.5% rate becomes 13.5% for the first 12 months.
Eligibility
You can join if your annual VAT-taxable turnover is £150,000 or less (excluding VAT). You must leave if your total income (including VAT) exceeds £230,000.
You can join if your annual VAT-taxable turnover is £150,000 or less (excluding VAT). You must leave if your total income (including VAT) exceeds £230,000.
Assumptions & Notes
All figures are annual unless stated · FRS calculation: gross turnover (net × 1.2) × flat rate percentage · Standard VAT: output VAT (net × 20%) minus input VAT on purchases · Limited cost trader test: goods spend < 2% of gross turnover OR < £1,000 per year · First year 1% discount reduces flat rate by 1 percentage point for first 12 months of VAT registration · Capital goods over £2,000 can be claimed separately under FRS — not included in this calculation · VAT registration threshold: £90,000 · FRS eligibility threshold: £150,000 net turnover · Rates correct as of 2025/26.
All figures are annual unless stated · FRS calculation: gross turnover (net × 1.2) × flat rate percentage · Standard VAT: output VAT (net × 20%) minus input VAT on purchases · Limited cost trader test: goods spend < 2% of gross turnover OR < £1,000 per year · First year 1% discount reduces flat rate by 1 percentage point for first 12 months of VAT registration · Capital goods over £2,000 can be claimed separately under FRS — not included in this calculation · VAT registration threshold: £90,000 · FRS eligibility threshold: £150,000 net turnover · Rates correct as of 2025/26.
This calculator is for illustrative purposes only and does not constitute financial or tax advice. Always consult a qualified accountant or tax adviser before choosing a VAT scheme.