VAT Schemes

The method described under the reporting VAT section is the way the majority of businesses report their VAT to HMRC. There are however a number of VAT schemes which may be beneficial to certain businesses. The most common schemes are:


The Flat Rate Scheme

Under the flat rate scheme, businesses charge VAT at the standard rate (currently 20%) on their supplies of goods and services. However, upon reporting to HMRC, the total amount of sales, inclusive of VAT is multiplied by the flat rate percentage for that industry (as directed by HMRC). This amount is paid over to HMRC. Any VAT paid to suppliers or on other expenses is disregarded from the calculation. This scheme is often used by consultants, contractors and builders.


  • Advantageous to businesses with low value expenses;
  • Less administration and easy to calculate;
  • Can claim back VAT paid to suppliers on capital goods greater than £2,000;
  • 1% discount on the flat rate on the first year of registration.


  • The flat rate is applicable to all sales, including zero rated sales so a business could end up paying more VAT than it collects;
  • Only available to businesses with turnover of less than £150,000.


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