Standard VAT
Best-£22,400VAT to pay
- VAT charged on sales
- £24,000
- Input VAT reclaimed
- -£1,600
- VAT to pay
- -£22,400
Every invoice reclaimed individually. More record-keeping, and better when your costs are high.
Which VAT scheme saves me more?
Compares the standard scheme against the Flat Rate Scheme on your own turnover, costs and sector percentage — including the limited cost trader rule.
On the figures so far
Standard VAT saves you about £1,360 a year.
The options are within £0 of each other, which is close enough that rounding in the figures you entered could change the order. To be surer: entering exact figures rather than rounded ones.
Refine it in 5 questions below.
The decision
Standard VAT saves you about £1,360 a year.
- 16.5%Effective flat rate
- YesLimited cost trader
- £22,400Standard scheme VAT
- £23,760Flat rate VAT
Why
- Your goods spend of £1,000 is below the limited cost trader test — under 2% of VAT-inclusive turnover, or under £1,000 a year. That forces the flat rate to 16.5%, which is what removed most of the benefit for service businesses.
- You reclaim £1,600 of input VAT on the standard scheme and nothing on the flat rate, so the more your business spends on vatable costs, the worse the flat rate looks.
- The flat rate is simpler to administer, which has a value this comparison cannot price.
Does this apply to you?
Each of these has to be true. Where your answers settle it we have said so; where they cannot, the test is yours to check.
Your VAT-taxable turnover, excluding VAT, is £150,000 or less when you join the Flat Rate Scheme. — met, on your answers
VAT Regulations 1995, reg. 55L
You are VAT registered. — we cannot tell from your answers
VATA 1994 s. 3
You have chosen the right sector percentage for your main activity. — met, on your answers
VAT Notice 733 s. 4
You are not a limited cost trader, or you have priced in the 16.5% rate. — not met, on your answers
Spending less than 2% of turnover on goods — or under £1,000 a year — makes you a limited cost trader at 16.5%, which leaves almost nothing and usually makes the standard scheme better.
VAT Regulations 1995, reg. 55K
You have not left the Flat Rate Scheme in the last 12 months. — we cannot tell from your answers
VAT Notice 733 s. 12
What this does not model
- The flat rate percentage is the one you entered. Check it against HMRC's sector list before acting.
- Assumes everything is standard-rated. Zero-rated sales are a strong argument against the flat rate.
- Capital assets over £2,000 can still be reclaimed on the flat rate and are not modelled.
- You must leave the scheme once VAT-inclusive turnover exceeds £230,000.
This is information, not tax or financial advice. It shows how the rules apply to the figures you entered — it does not know the rest of your circumstances. Worth checking with an accountant before you act.
Rates as at 6 April 2026 — the 2026/27 tax year.
What to keep
The figures above are only as good as what sits behind them. These are the records HMRC would ask for.
- Turnover excluding VAT for the last 12 months, and a forecast for the next.
- Your spend on goods — not services — as a proportion of turnover, for the limited cost trader test.
- Purchase invoices showing recoverable VAT, which is what you give up on the flat rate.
- Details of any single capital asset over £2,000 including VAT, which is recoverable even on the flat rate.
- The sector percentage you are using, and why that is your main activity.
The dates that matter
| When | What | If you miss it |
|---|---|---|
| Any time | Join the Flat Rate Scheme, effective from the start of the next VAT period. | Nothing, but it cannot be backdated except in limited circumstances at HMRC's discretion. |
| The anniversary of registration | Check turnover against the £230,000 exit test. | You must leave from that date; staying in is an error that will be corrected with interest. |
| Each quarter, one month and seven days after the period end | File and pay. | A penalty point under the points-based regime. |
| Each return | Apply the limited cost trader test — it is tested every period, not once. | Using your sector rate in a period where you were a limited cost trader underpays VAT for that period. |
How to actually do it
Find your sector percentage
VAT Notice 733 lists every trade sector and its rate. Pick the one that describes your main activity; if two fit, choose the one that reflects most of your turnover and record why.
www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733
Apply the limited cost trader test
Relevant goods must exceed 2% of VAT-inclusive turnover and £1,000 a year. Goods means goods — not services, not fuel except in transport businesses, not capital items.
www.gov.uk/guidance/vat-flat-rate-scheme-limited-cost-businesses
Compare on your own figures
Flat rate: the percentage of gross turnover, with no input recovery. Standard: output tax less input tax. The scheme that leaves you with more is the one to use.
Apply to join
Online or by form VAT600FRS. Take the 1% first-year discount if you are within 12 months of registration.
Keep watching the tests
The limited cost trader test applies every period, and the exit threshold applies at each anniversary. Neither is set and forget.
Worked examples
Three situations, worked through. They use the same rules as the tool above, so you can check the arithmetic against a case near your own.
Consultant, £80,000 turnover, 14.5% sector rate, £3,000 of vatable costs
- Flat rate payable
- £13,920 on £96,000 gross
- Standard scheme payable
- £16,000 less £600 = £15,400
- Difference
- £1,480 in favour of the flat rate
- Goods spend test
- Must exceed £1,920 to avoid 16.5%
The flat rate wins when costs are low — but the goods test is the live risk, and a consultant buying almost no goods is exactly who it was written for.
Same consultant, limited cost trader
- Flat rate at 16.5%
- £15,840
- Standard scheme payable
- £15,400
- Difference
- £440 in favour of the standard scheme
The 16.5% rate leaves about 0.5% of gross turnover, which is less than most businesses recover as input tax. Once you are a limited cost trader the scheme has done its job and should usually be left.
Retailer, £120,000 turnover, 7.5% sector rate, £45,000 of vatable purchases
- Flat rate payable
- £10,800 on £144,000 gross
- Standard scheme payable
- £24,000 less £9,000 = £15,000
- Difference
- £4,200 in favour of the flat rate
A low sector rate can beat the standard scheme even with substantial input tax. The answer turns on the sector percentage as much as on costs.
The rules behind this
Every figure above comes from one of these. Where we have interpreted rather than calculated, the tool says so.
Under the Flat Rate Scheme you pay a fixed percentage of VAT-inclusive turnover and cannot recover input tax.
You may join with taxable turnover of £150,000 or less excluding VAT, and must leave at £230,000 including VAT.
A limited cost trader uses 16.5% regardless of sector — relevant goods under 2% of turnover, or under £1,000 a year.
A 1% discount applies in the first year of VAT registration.
Input tax on a single capital asset costing £2,000 or more including VAT is recoverable even on the flat rate.
Questions people ask
Is the Flat Rate Scheme still worth it?
For some sectors, yes. The limited cost trader rule removed most of the benefit for service businesses with few costs, which was the largest group using it. If your sector rate is low and you buy goods, it can still be clearly better.
What counts as goods for the 2% test?
Physical goods used in the business. Not services, not rent, not accountancy, not advertising, not food and drink for you or your staff, not vehicles or fuel unless you run a transport business, and not capital items.
Can I still charge 20% on the flat rate scheme?
Yes, and you should. You invoice VAT normally at the rate for your supply; the flat percentage only governs what you hand over to HMRC. The difference is the benefit of the scheme.
What if I get the sector wrong?
HMRC can reassess the difference for up to four years, with interest, and longer if the error was careless or deliberate. Record why you chose the sector at the time — a contemporaneous note is worth a great deal in an enquiry.
Can I recover VAT on anything at all?
One exception: a single capital purchase of £2,000 or more including VAT. Pre-registration input tax is also claimable on your first return even if you join the scheme straight away.
Software that files it for you
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