VAT
The Flat Rate Scheme pays a fixed percentage of gross turnover instead of accounting for input and output VAT. When it saves money and when it costs money.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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Xero Gold PartnerCertified advisor
QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityUnder the Flat Rate Scheme you charge customers 20% but pay HMRC a fixed percentage of your VAT-inclusive turnover, usually without reclaiming input VAT. It suits low-cost service businesses, but the limited cost trader rate of 16.5% removes most of the benefit.
How it works
Why it usually is not worth it now
Under the Flat Rate Scheme you charge customers 20% but pay HMRC a fixed percentage of your VAT-inclusive turnover, usually without reclaiming input VAT. It suits low-cost service businesses, but the limited cost trader rate of 16.5% removes most of the benefit.
You must have taxable turnover under £150,000 to join and leave once turnover including VAT exceeds £230,000. Sector percentages range from around 4% to 14.5%, with a 1% discount in the first year of registration. Input VAT cannot generally be reclaimed, except on capital assets costing £2,000 or more including VAT.
The attraction is simplicity plus a margin where your costs are low. Bill £100,000 plus VAT, collect £120,000, pay 12% of £120,000, and keep the difference less the input tax you gave up.
Most one-person consultancies and contractors are limited cost traders, paying 16.5% of gross turnover, which is 19.8% of net. That is close to the full 20% you collect, with no input VAT recovery, so standard accounting normally wins.
Run the comparison on real figures before joining or staying. Our VAT calculator sits alongside the other tools and shows both positions on your own numbers.
Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.
Local help
We work with company directors across London and Surrey from our office at 12 London Road, Morden, London SM4 5BQ. Pick your area, or send the form below and we will call you back.
Frequently asked
Yes, voluntarily at any time with written notice, and you must leave if you exceed the exit threshold.
Yes, at the normal rate. The flat rate only affects what you pay HMRC.
Yes, they are included in flat rate turnover, which usually makes the scheme a bad fit for zero rated businesses.
Keep bank statements, sales and platform reports, purchase invoices, payroll records, VAT workings, finance agreements and Companies House correspondence. We confirm the exact list at onboarding and identify gaps before a filing deadline becomes urgent.
The fee depends on transaction volume, record quality, VAT and payroll requirements, historic catch-up and the level of reporting needed. We agree a fixed scope and price before technical work starts, with published packages available on our fees page.
Yes. We request professional clearance, collect the prior records and authorities, check the next Companies House and HMRC deadlines, and give you one clear handover list. The process is normally completed remotely.
Yes. We work through secure cloud records, scheduled reviews and digital approvals, while keeping a named team available by phone, video call and email. Clients can also visit our Morden office by appointment.
We regularly work with Xero, QuickBooks, FreeAgent, Sage and connected sales or expense apps. The right setup depends on transaction volume, integrations and the reports you need, not simply the software brand.
The relevant calendar may include annual accounts, Corporation Tax payment and return dates, confirmation statements, VAT returns, payroll submissions and Self Assessment. We map the dates from your company year end and registrations.
No. This page explains general UK rules and common accounting treatment. Your facts, contracts and wider tax position must be reviewed before you rely on a conclusion.
Included approach
Check the current rules
Deadlines, thresholds and filing rules change. GOV.UK and Companies House publish the current statutory position; advice should then be applied to your company’s circumstances.
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