The VAT Flat Rate scheme simplifies businesses’ VAT accounting, letting them pay a fixed percentage of their turnover. The applicable percentage depends on the business type, aiming to reduce administration costs associated with VAT compliance.
Businesses expecting annual taxable turnover up to £150,000 (excluding VAT) in the next 12 months can join the VAT flat rate scheme.
This turnover includes standard, reduced rate, or zero rate sales and other supplies. However it is excluding actual VAT charged, VAT exempt sales, and sales of capital assets.
Introduced in April 2017, the limited cost trader test mandates a fixed rate of 16.5% for qualifying businesses. Limited cost traders might find traditional VAT accounting more beneficial.
Once businesses join the scheme, they can continue using it if their total business income remains below £230,000 in a 12-month period. Special rules apply for temporary increases in turnover, and businesses in their first year of VAT registration receive a 1% discount.
