Not every trader in the UK is required to register for VAT. However, if you are, or if you choose to register voluntarily, you have two options – the standard form or the Flat Rate Scheme. While the first option is straightforward, not everyone knows what the Flat Rate Scheme entails. So what exactly is this scheme and what are its advantages?
What is the Flat Rate Scheme?
The Flat Rate Scheme can be described as a simplified VAT system. Its purpose is to simplify VAT reporting.
When you declare VAT in the standard way, you have to account for VAT on every sale or purchase you make. FRS works a little differently. Here you calculate VAT as a percentage of your total taxable turnover.
Who Can Use the Flat Rate VAT Scheme in the UK?
The Flat Rate VAT system has its advantages, but it is not available to everyone. In short, it is a solution designed for small businesses. This is because you can only use the FRS if:
- Your estimated taxable turnover – excluding VAT – for the next year will not exceed £150,000,
- Your estimated total income – including VAT – for the next year will not exceed £191,500.
Once you start using this scheme, you can continue to use it until your total business income exceeds £230,000. At that point, you must leave the scheme and switch to the standard, slightly more complex VAT rules.
If you have only recently become a VAT payer, you can pay a reduced flat rate of 1% until the day before the first anniversary of your VAT registration.
