VAT flat rate calculator

How do you calculate flat rate VAT?

Add VAT to your sales to get your turnover including VAT, then multiply by your flat rate. GOV.UK's example: a £1,000 bill plus 20% VAT is £1,200; at 11%, you pay HMRC £132. You keep the difference between the VAT you charged and what you pay, but you reclaim no VAT on what you buy, except on a single capital item of £2,000 or more.

A general builder with £80,000 of sales, £24,000 of materials and £6,000 of other costs (all excluding VAT) has £96,000 of turnover including VAT. At 9.5% the flat rate payment is £9,120. Under the standard scheme they would pay £16,000 of VAT charged less £6,000 reclaimed, £10,000. The flat rate scheme saves £880 a year (in the first year of VAT registration it saves £1,840 a year).

What is the flat rate VAT scheme?

A simpler way for small businesses to work out the VAT they pay HMRC. You still charge 20% VAT on your invoices. Instead of adding up the VAT on every purchase, you pay one percentage of your turnover, set by your type of business.

What you give up is reclaiming VAT on your purchases. For a trade that buys a lot of materials, that is often worth more than the scheme saves.

Flat rate scheme percentages 2026/27

Labour-only building or construction services means the materials you supply are less than 10% of the turnover for those services; above that, you use the general building rate.

The limited cost trader rule, which catches labour-only trades

If what you spend on goods, including VAT, is less than 2% of your flat rate turnover, or more than that but under £1,000 a year (£250 for a quarterly return), you are a limited cost business and pay 16.5% whatever your trade. It is tested every return, so you can move between 16.5% and your sector rate from one quarter to the next.

Goods means things you buy for the business and use in it, like the materials you fit. It does not include fuel and vehicle costs, capital items, food and drink, or any services: so phone bills, tool hire, insurance, rent, accountancy and software do not count.

A labour-only subcontractor with £45,000 of sales and £600 of goods: £720 including VAT is under 2% of £54,000 (£1,080), so the rate is 16.5%: £8,910, against £8,480 on the standard scheme. The flat rate scheme costs £430 a year. With £2,000 of goods, the same business is not limited cost, pays 14.5%, and the scheme saves £370 a year. 16.5% of turnover including VAT is 19.8% of sales before VAT, nearly all the VAT you charged.

Flat rate VAT thresholds: £150,000 to join, £230,000 to leave

You can join if you expect your VAT taxable turnover to be £150,000 or less, excluding VAT, in the next 12 months. You must leave once your total income including VAT goes over £230,000 in the year to your anniversary of joining, or if you expect it to in the next 30 days alone. Once you leave, you cannot rejoin for 12 months. VAT registration itself starts at £90,000 of taxable turnover.

Is it better to be on flat rate VAT?

It depends on how much you buy. The more materials you buy, the more VAT you would reclaim on the standard scheme, and the less the flat rate scheme is worth.

• General builder, £80,000 of sales, £24,000 of materials: the flat rate saves £880 a year.
• Labour-only subcontractor, £45,000 of sales, £600 of goods: it costs £430 a year, because of the limited cost rule.
• Plumber, £90,000 of sales, £40,000 of materials: it costs £1,260 a year.

Flat rate VAT and CIS subcontractors

Sales to VAT-registered contractors under the construction reverse charge carry no VAT, and HMRC says to leave them out of your flat rate calculation. But on the scheme you still cannot reclaim VAT on your materials and overheads. Take the general builder above with 70% of sales reverse charged: the flat rate payment falls to £2,736, but the standard scheme would give a £1,200 repayment, so the flat rate scheme costs £3,936 a year. HMRC's own guidance says businesses in this position should consider whether the scheme is still useful.

The first-year 1% discount

You take 1% off your flat rate until the day before the first anniversary of your VAT registration: the date you registered for VAT, not the date you joined the scheme. Enter both dates in the calculator and it works out how many months of your year get the discount.

Who qualifies for flat rate VAT?

A VAT-registered business expecting VAT taxable turnover of £150,000 or less, excluding VAT, in the next 12 months. You can apply when you register for VAT or later. Some businesses cannot join, for example if you left the scheme in the last 12 months: check GOV.UK or ask your accountant.

How to come off the flat rate VAT scheme

Write and tell HMRC. Most businesses leave at the end of an accounting period, but you can leave at any time, and HMRC confirms the date in writing. From then you use standard VAT accounting, and you cannot rejoin for 12 months. You must leave if your income goes over the limit.

What are the disadvantages of flat rate VAT?

• No VAT back on what you buy, apart from single capital items of £2,000 or more, so your allowable expenses are recorded including VAT.
• The limited cost rule: 16.5% for businesses that buy few goods, which takes nearly all the VAT they charge.
• Reverse charged sales earn nothing on the scheme, but you still lose the VAT on your costs.