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UK VAT Flat Rate Scheme Calculator

Compare the Standard VAT scheme against the Flat Rate Scheme for your industry. Includes the Limited Cost Trader 16.5% test, the 1% first-year discount, joining (£150,000) and mandatory exit (£230,000) checks.

01 —INPUTS
Your Business

HMRC publishes 51 sector rates from 4% (food retail) to 14.5% (IT, accountancy, legal). Pick the one that best matches your main business activity.

Joining threshold: £150,000.

Standard vs Flat Rate Comparison

The 20% VAT on your business purchases (software, equipment, professional fees, stock). Leave blank or use 0 for service businesses with low purchases.

Goods only — excludes services, capital items, food/drink for staff, fuel (except transport sector). If this is below 2% of your gross turnover OR below £1,000/year, your rate becomes 16.5%.

02 —RESULTS
Your effective FRS rate

Computer and IT consultancy or data processing

16.5%

Industry base rate

14.5%

Limited Cost Trader

16.5% (override)

First-year discount

Not applied

Standard scheme — VAT to HMRC

£11,500.00

£12,000.00 output − £500.00 input

FRS — VAT to HMRC

£11,880.00

£72,000 gross × 16.5%

Annual difference

-£380.00

Standard pays HMRC less

Recommendation

Stay on the Standard scheme. You reclaim more input VAT than FRS would save you — switching would cost £380.00 per year.

Break-even: at input VAT of £120 (0.2% of net turnover), the two schemes pay HMRC the same. Below that, FRS wins; above, Standard wins.

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How the Flat Rate Scheme works

Under the Standard VAT scheme, you charge customers 20% VAT, claim back 20% on your purchases (input VAT), and pay HMRC the difference. Bookkeeping requires tracking VAT on every invoice in and out.

Under the Flat Rate Scheme, you still charge customers 20% VAT, but instead of input/output netting you pay HMRC a single fixed percentage of your VAT-inclusive turnover. The percentage depends on your industry sector and ranges from 4% (food retail) to 14.5% (IT, legal, accountancy). You generally cannot reclaim input VAT — except on capital goods over £2,000 inclusive of VAT.

The maths is straightforward: customer pays £1,200 (£1,000 net + £200 VAT). Under FRS at 14.5%, you pay HMRC £1,200 × 14.5% = £174 and keep £26 of the VAT collected. Under Standard, you pay HMRC £200 minus whatever input VAT you reclaim. Whichever is lower depends entirely on how much input VAT your business actually pays.

Frequently asked questions

What is the VAT Flat Rate Scheme (FRS)?
The VAT Flat Rate Scheme is an HMRC simplification scheme for businesses with VAT-exclusive turnover under £150,000. Instead of tracking input VAT on every purchase, you pay HMRC a fixed percentage of your VAT-INCLUSIVE turnover. The percentage depends on your industry — 14.5% for IT/accountancy/legal, 9.5% for general construction, 4% for food retail, etc. You still charge customers 20% VAT, but keep the difference between what you collect and the FRS percentage.
Who should use the Flat Rate Scheme?
FRS is generally best for service-led businesses with low VATable purchases — IT consultants, lawyers, accountants, copywriters, designers — because they reclaim little input VAT under the Standard scheme. The 1% first-year discount makes it especially attractive in year one of VAT registration. It's a poor fit for retail, manufacturing, or any business with substantial VAT on stock, equipment, or supplier invoices.
What is a Limited Cost Trader and why does it matter?
From 1 April 2017, HMRC introduced the Limited Cost Trader (LCT) test to stop service-only businesses gaming low FRS rates. If your annual spend on relevant goods (not services, not capital, not food/drink for staff, not fuel except for transport businesses) is less than 2% of VAT-inclusive turnover OR less than £1,000 per year (whichever is greater), your FRS rate becomes 16.5% — almost always worse than the Standard scheme. Most service consultants are caught by this rule.
How does the 1% first-year discount work?
If you join the Flat Rate Scheme within 12 months of your VAT registration date, HMRC reduces your applicable percentage by 1 percentage point for the first 12 months. So an IT consultancy on the 14.5% rate pays 13.5% in year one. The discount runs from your VAT registration date, not your FRS join date — so registering more than 12 months before joining FRS forfeits the discount entirely.
When do I have to leave the Flat Rate Scheme?
You must leave the FRS at your scheme anniversary if your total income (including VAT) over the previous 12 months has exceeded £230,000. HMRC may permit you to stay on if you can demonstrate that your total income for the next 12 months will be below £191,500 incl VAT. You must also leave immediately if you have reasonable grounds to believe the next 30 days alone will exceed £230,000.
Is the Flat Rate Scheme worth it for me?
It depends on your input VAT relative to net turnover. The break-even point for IT/accountancy at 14.5% is about 2.6% — if you reclaim less than 2.6% of net turnover in input VAT under Standard, FRS pays HMRC less. For retail at 4%, the break-even is much higher at 15.2%. Use this calculator with your actual annual input VAT to see which scheme costs less for your situation.

Sources

Industry-specific guides

Pre-populated calculators with the right HMRC rate, typical input VAT scenarios, and Limited Cost Trader risk assessment for your sector:

Computer and IT consultancy or data processing

FRS rate 14.5%

Accountancy or book-keeping

FRS rate 14.5%

Lawyer or legal services

FRS rate 14.5%

Management consultancy

FRS rate 14.0%

Architect, civil and structural engineer or surveyor

FRS rate 14.5%

Financial services

FRS rate 13.5%

Advertising

FRS rate 11.0%

Photography

FRS rate 11.0%

Hairdressing or other beauty treatment services

FRS rate 13.0%

Entertainment or journalism

FRS rate 12.5%

Estate agency or property management services

FRS rate 12.0%

General building or construction services

FRS rate 9.5%

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