VAT Flat Rate Scheme Calculator
What is Vat Flat Rate Scheme?
The amount of Value added tax (VAT) a business pays the HMRC or claims back is actually the difference between the VAT charged on the invoice for the goods and services sold to the customer and VAT charged on the inwards invoice received by the business on its purchases.
VAT Flat Rate Scheme is an easy and streamlined form of VAT scheme useful for small business. The scheme enables the business to keep the variation between the amount you need to pay to HMRC, and the amount of VAT charged to your customers. Your business will ask your customers to pay the Value Added Tax (VAT) in standard way. But for your business the amount of VAT you need to pay to HMRC is calculated as a flat percentage of your revenue (including the Value Added Tax).
This scheme is not very beneficial for all types of business specially who invest less like service providers, or types of business where they need to buy and sell goods outside the UK etc.
By using a VAT flat rate scheme:
- The business will pay a fixed rate of value added tax to HMRC
- The business can keep the difference between the VAT charged to the customers and the amount paid to HMRC
VAT Flat Rate Scheme for Small Businesses
Owing to the complexity in filling up VAT by small businesses, the HMRC designed the Flat Rate Scheme (FRS) to ease the process of sales and purchases. The business while charging the normal VAT rate to its customers can apply a fixed flat rate percentage to its total sales to HMRC as VAT. However, this fixed-rate percentage will vary from business to business depending on the trade they are into. Also only those companies reporting an annual turnover of less than £150,000 excluding VAT can apply.
Businesses can also merge it with other schemes like Annual Accounting. This would help them to submit VAT only once a year in addition to saving large bills. However, one cannot recover input tax as it is already built into the FRS.
Advantages To VAT Flat Rate Scheme For Small Businesses
- Mostly the fixed rate percentages are lower than the standard rates for applicable businesses
- The calculation is easy and simple. It eliminates any chances of calculation mistakes once you have figured out the trade you are into
VAT – Flat-rate scheme changes Apr 2017
At Autumn Statement on 23 November 2016, the Chancellor of the Exchequer announced the introduction of a new 16.5% VAT flat rate for businesses with limited costs. This will take effect from 1 April 2017. This note provides further details on those affected by the new rate.
What is a limited cost trader?
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
VAT Flat Rate Scheme Calculator:
VAT Flat Rate Scheme Calculator
*The values calculated are approximations and subject to change based on other income sources and allowances received. For accurate and detailed report, please consult with an accountant.
How Do I Work Out My Flat Rate VAT?
The VAT flat rate you use usually varies based on the type of your business. The VAT can be paid a different rate in case you have spent a small amount on goods. If you’re currently in first year of your vat registered business, you also get 1% discount.
When you spend a small amount on goods,you fall under the category of ‘limited cost business’.For this the cost of goods need to be either 2% of your business turnover or £1,000 a year (if your costs are more than 2%).
If you do not fall under the class of limited cost business, you use your business type to work out your flat rate.
Flat Rates For Types Of Businesses
As per HMRC, only businesses classified as limited cost business will have to pay a rate of 16.5%. For remaining businesses you can find them out below (sample only).
VAT Flat Rates 2019: Recent and in Percentages:
If you're not running a limited cost business a different method will be applicable for you. In such case you use the 'business type' for working out VAT flat rate percentages 2019 (check below table):
|Type of business||Current VAT flat rate (%)|
|Accountancy or book-keeping||14.5|
|Any other activity not listed elsewhere||12|
|Architect, civil and structural engineer or surveyor||14.5|
|Boarding or care of animals||12|
|Business services not listed elsewhere||12|
|Catering services including restaurants and takeaways before 15 July 2020 and after 12 January 2021||12.5|
|Catering services including restaurants and takeaways between 15 July 2020 and 12 January 2021||4.5|
|Computer and IT consultancy or data processing||14.5|
|Computer repair services||10.5|
|Entertainment or journalism||12.5|
|Estate agency or property management services||12|
|Farming or agriculture not listed elsewhere||6.5|
|Film, radio, television or video production||13|
|Forestry or fishing||10.5|
|General building or construction services*||9.5|
|Hairdressing or other beauty treatment services||13|
|Hiring or renting goods||9.5|
|Hotel or accommodation before 15 July 2020 and after 12 January 2021||10.5|
|Hotel or accommodation between 15 July 2020 and 12 January 2021||0|
|Investigation or security||12|
|Labour-only building or construction services*||14.5|
|Laundry or dry-cleaning services||12|
|Lawyer or legal services||14.5|
|Library, archive, museum or other cultural activity||9.5|
|Manufacturing fabricated metal products||10.5|
|Manufacturing not listed elsewhere||9.5|
|Manufacturing yarn, textiles or clothing||9|
|Mining or quarrying||10|
|Pubs before 15 July 2020 and after 12 January 2021||6.5|
|Pubs between 15 July 2020 and 12 January 2021||1|
|Real estate activity not listed elsewhere||14|
|Repairing personal or household goods||10|
|Retailing food, confectionery, tobacco, newspapers or children’s clothing||4|
|Retailing pharmaceuticals, medical goods, cosmetics or toiletries||8|
|Retailing not listed elsewhere||7.5|
|Retailing vehicles or fuel||6.5|
|Sport or recreation||8.5|
|Transport or storage, including couriers, freight, removals and taxis||10|
|Wholesaling agricultural products||8|
|Wholesaling not listed elsewhere||8.5|
*'Labour-only building or construction services' means building services where the value of the materials supplied is less than 10% of the turnover for those services. If more than this amount, the business is classed as ‘General building or construction services’.
How Much Do I Pay?
You work-out the tax you pay by multiplying your VAT flat rate (based on your business type) by your ‘VAT inclusive turnover’.
You bill a customer for £1,000, and add a VAT at 20% to make £1,200 in total. If you’re a caterer, so the VAT flat rate for your business is 12.5%.Your flat rate payment will be either 12.5% of £1,200, or £150.
What is VAT Inclusive Turnover?
VAT inclusive turnover is not same as standard VAT turnover. As well as business income (such as from sales), it includes the VAT paid on that income.
What Are The Implications Of Introducing The Limited Cost Trader?
Businesses following the FRS will not be allowed to show certain purchases as expenses like purchasing vehicles or its parts, consumable like food and drinks, capital expenditures. This is most likely to affect IT contractors whose annual cost is very less.
Is Flat Rate Scheme The Right Scheme For My Business?
That will depend on the type of business you are into. Generally some common tips can be followed before deciding on joining the FRS-
- Do not join if your annual costs are less than 2% of VAT flat turnover. In that case your business would be termed as Limited Cost Business.
- Do not join if you are unable to decide which sector your business falls into. This would further lead either paying tax more or less. Paying less tax would lead to further penalty being levied in the subsequent year.
- Do not join if rules of inclusion and exclusion of relevant goods are not clear. This might lead to pay higher taxes than usual.
- Join if your annual turnover is less than £150,000 and have significant amount of applicable input costs.
- Join if you hate long taxation process and calculations. FRS helps in simplifying the VAT process.
If you are still not clear about whether your business is right for applying to FRS, then you should look for an expert accountant
What are the Alternatives To Flat Rate Scheme?
Under the process of Standard Accounting, a business has to pay VAT on a quarterly basis. Also any amount that is to be repaid will also be done quarterly. VAT is calculated by comparing the difference of amount of VAT due on costs and VAT owned on sales. For example, if a company has higher costs then its sales as difference, then as per rule HMRC will pay the difference of VAT and vice versa if sales are higher than costs.
In Annual Accounting, you make advance VAT payments towards your VAT bill which is based on your last return. If the business is into its first year, then it has to provide an estimate. When you submit your VAT return, you either make a final payment or receive payment from HMRC depending on the difference between estimated and actual VAT.
Under this scheme, a business has to pay VAT only once a year. Ideally it is not suitable for those traders who regularly claim refund on VAT as it could only be done once a year. Businesses having more an estimated turnover of more than £1.35 million cannot join this scheme.
Under cash accounting scheme, a business only pays VAT on its sales when it has received payment from its customers and reclaim VAT on purchases when it has paid its supplier. Similar to Annual Accounting, only those businesses with turnover of less than £1.35 million can join this scheme. Also it cannot be coupled with any other existing scheme.
Which Businesses Can Join The FRS? (Eligibility Criteria)
As per HMRC, The FRS is for small businesses who
- The business is VAT registered (businesses register themselves in VAT either if its annual turnover is more than £85,000 or in some case voluntarily)
- the taxable turnover (excluding VAT) in the next year will be £150,000 or less for the business.
- the business is not 'associated' with another business wherein the other business dominates or influences it. (for further details contact an expert accountant
Which Businesses Cannot Join The FRS? (Eligibility Criteria)
As per HMRC'S rule, (section #3),A business cannot join if it has stopped using the FRS in the 12 months before the date of its new application, or within the past 24 months has been registered for VAT in the name of either a VAT group or division.
There are other restrictions which can be best explained by an accountant or by going through the whole FRS code. If you want to check whether your business is eligible for FRS, you can book a free consultation with our experts.
How To Register For FRS?
- Online - https://www.gov.uk/vat-registration
- Post- One can download a VAT 600 FRS Flat Rate Scheme application from the GOV.UK website.
- Postal applications should be sent to the National Registration Service.
- Phone - Telephone: 0300 200 3700.
We would recommend going through the documentations properly and understanding the instructions explicitly mentioned before filling up and submitting the form. A business may find itself in a position
where it is required to pay penalty at a later date due to choosing an incorrect sector. You can connect with an accountant near you for further queries.
Vat Flat Rate Scheme Advisor – DNS Accountants
DNS Accountants is a trusted brand and has years of knowledge in the accounting and taxation domain. The firm has been helping businesses with VAT flat rate scheme and other VAT related queries. The team at DNS comprises of learned taxation professionals and ACA’s or Chartered Accountants (CA). The firm focuses a lot of customer service & believes in delivering unmatched client service. DNS Accountants offers:
- services at a nominal rate
- best-in-class accounting and tax planning services
- VAT flat rate scheme guidance and taxation advice
Note - Please note DNS Accountants does not receive any benefit from your use of the flat-rate scheme and the full benefit of any profits generated by the flat-rate scheme belongs to your limited company. Our services are clearly marketed as Limited Company services (PSC) not as a single person Umbrella company. Our fees are based on market rates and do not differ based on your use of any particular VAT scheme.