Could you save money on the VAT Flat Rate Scheme?

In our ongoing quest to demystify accounting, we’ve released a new tool to calculate whether your business could save money on the VAT Flat Rate Scheme.

The calculator started life as a Hack Week project, but we felt it was so useful that we needed some extra time to polish it before launch.

What is the VAT flat rate scheme anyway?

When you're on the VAT flat rate scheme, instead of adding up all the output VAT you've charged and taking off all the input VAT you can reclaim, you work out the amount that you pay to HMRC in a different way.

You add up all your sales for each quarter, including the output VAT you charged to your customers. This total figure is called your "flat rate turnover".

When you’re adding up your sales to work out your flat rate turnover, you must include all your sales except those that are outside the scope of UK VAT. That means you must also include any exempt sales and zero-rated sales.

Once you've worked out your flat rate turnover for the quarter, you multiply that by the appropriate flat rate percentage. The flat rate percentages are set by HMRC.

The percentages are different depending on your business’s trade. This is because you can't usually reclaim input VAT when you’re using the flat rate scheme, except in certain circumstances like when you buy a large item of equipment. 

For more information on the VAT Flat Rate Scheme see this article.

Will it save me money?

HMRC designed the scheme to make record-keeping easier for small businesses rather than to save them money, so the percentages are set to compensate for the amount of input VAT that a business would typically be able to claim.

But sometimes businesses can save some money by using the flat rate scheme, which is why we built the FreeAgent VAT Flat Rate Calculator.

Simply enter the numbers from last year's VAT return and the calculator will tell you what you would have paid on the Flat Rate Scheme, and if it could save you money.

Try the VAT Flat Rate Scheme Calculator now.