VAT flat rate scheme calculator, 2026/27

How this is calculated

Under the flat rate scheme you charge customers VAT normally at 20.0%, but you pay HMRC a fixed percentage of your VAT-inclusive turnover instead of the difference between output and input VAT. This calculator multiplies your VAT-inclusive sales by your sector's flat rate, or the 16.5% limited cost trader rate if you spend little on goods.

Under standard VAT accounting, you pay the VAT charged on sales less the VAT you can reclaim on purchases. The calculator strips VAT out of your inclusive sales figure to find output VAT, then deducts the input VAT you specify.

The limited cost trader test looks at spending on goods (not services) in the quarter: if it is less than 2% of VAT-inclusive turnover, or under £1,000 a year pro-rated, you must use the 16.5% rate regardless of your normal trade sector percentage, which often makes the flat rate scheme unattractive for service businesses with low costs.

Who benefits from the flat rate scheme

Businesses with genuinely low purchase costs relative to turnover, and whose sector's flat rate percentage sits comfortably below the effective rate they would otherwise pay, tend to benefit, along with those who value the administrative simplicity of not tracking input VAT on every purchase.

Businesses with significant reclaimable VAT on purchases, such as those buying substantial stock or equipment, usually do better under standard VAT accounting, since the flat rate scheme does not let you separately reclaim VAT on most purchases (capital assets over £2,000 including VAT are an exception).

Practical points before joining or leaving

New businesses get a 1% discount off their flat rate percentage for the first year of VAT registration, which can make the scheme more attractive initially even if it is marginal thereafter.

You must leave the scheme if your total business income (including exempt and outside-the-scope income) exceeds £230,000 in the past 12 months, or if you expect it to in the next 30 days, and you can voluntarily leave if it no longer suits you.

What is the limited cost trader rate and when does it apply?

It is a fixed 16.5% flat rate that applies if your spending on goods (not services) is below 2% of your VAT-inclusive turnover, or below £1,000 a year pro-rated for the period. It overrides your normal sector percentage and often makes the flat rate scheme less worthwhile for consultants and other low-cost-of-sale businesses.

Can I reclaim VAT on purchases under the flat rate scheme?

Generally no, except for a single capital asset purchase of £2,000 or more including VAT, where normal VAT recovery rules apply. This is why the scheme is best suited to businesses with genuinely low overheads.

Do I still charge customers standard VAT under the flat rate scheme?

Yes. You invoice and charge VAT to customers in the normal way; the flat rate only affects how much you pay over to HMRC, not what you charge, so the difference between the two is a business profit or additional cost depending on your rate.

When must I leave the VAT flat rate scheme?

You must leave if your total business income over the previous 12 months exceeds £230,000, or you expect it to exceed that in the next 30 days alone. You can also choose to leave voluntarily at the end of any VAT accounting period.