VAT Flat Rate Scheme Calculator UK

Find out if the VAT Flat Rate Scheme saves you money. Compare standard VAT vs flat rate for your sector. 2025/26 rates.

VAT Flat Rate Scheme Calculator 2025/26

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VAT Collected from Customers
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Standard Scheme – VAT to HMRC
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Flat Rate – VAT to HMRC
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Annual Saving (FRS vs Standard)
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FRS Rate Applied
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VAT-Inclusive Turnover
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2025/26 VAT Flat Rate Percentages by Sector

Business SectorFRS RateFirst Year Rate
Accountancy or book-keeping14.5%13.5%
IT consultancy / data processing14.5%13.5%
Architect, civil and structural engineer14.5%13.5%
Legal services14.5%13.5%
Management consultancy14%13%
Public relations14%13%
Hairdressing or other beauty treatment services13%12%
Catering services including restaurants and takeaways12.5%11.5%
Hotel or accommodation10.5%9.5%
Computer repair services10.5%9.5%
Retail (not food, confectionery, tobacco, newspapers or children's clothing)7.5%6.5%
Retail food, confectionery, tobacco, newspapers, children's clothing4%3%
Pharmacy or chemist4%3%
Limited Cost Trader (goods <2% of turnover or <£1,000/yr)16.5%15.5%

How the VAT Flat Rate Scheme Works

Under the standard VAT scheme, you calculate VAT on every sale (output tax) and subtract VAT on purchases (input tax), paying the difference to HMRC. This requires detailed record-keeping of all VAT transactions.

Under the Flat Rate Scheme:

Example: An IT consultant charges £10,000 + VAT = £12,000 total. Under FRS at 14.5%, they pay HMRC £12,000 × 14.5% = £1,740. They keep £12,000 - £1,740 = £10,260. Without FRS, they would pay £2,000 VAT - any input VAT reclaimed. If input costs are low, FRS results in a significant saving.

Limited Cost Trader Rules

Important: If you spend less than 2% of your VAT-inclusive turnover on goods (or less than £1,000 per year on goods), you are a Limited Cost Trader and must use the 16.5% flat rate. This applies even if your sector would normally attract a lower rate.

Goods for this test must be used solely for your business, not capital expenditure, food, vehicles, or items for personal use. Services do not count as goods.

Most consultants, IT contractors, and service-based businesses are Limited Cost Traders. At 16.5%, the FRS typically provides little to no benefit over the standard scheme for these businesses.

VAT Registration Thresholds 2025/26

When is the Standard Scheme Better?

The Flat Rate Scheme is beneficial when your VAT-ratable input costs are low relative to your turnover. The standard scheme may be better when:

How VAT Flat Rate Scheme Calculator Works

This calculator helps you work out VAT amounts using current UK rates. Value Added Tax (VAT) is charged on most goods and services sold by VAT-registered businesses in the UK. Understanding how VAT is calculated is essential for businesses approaching the registration threshold and for consumers wanting to know the pre-VAT price of purchases.

VAT is calculated as a percentage of the net price. To add VAT, multiply by 1.2 (for standard rate). To find the VAT-exclusive price from a VAT-inclusive amount, divide by 1.2. This tool handles both calculations automatically.

Key Information for 2025/26

The UK VAT rates are: standard rate 20% (most goods and services), reduced rate 5% (home energy, children's car seats, sanitary products), and zero rate 0% (most food, children's clothing, books, newspapers). The VAT registration threshold is £90,000 (from April 2024). Businesses with taxable turnover below this can register voluntarily. VAT returns are typically submitted quarterly via Making Tax Digital (MTD).

Example Calculation

A product priced at £500 excluding VAT: VAT at 20% = £100, giving a VAT-inclusive price of £600. Conversely, if an item costs £600 including VAT, the net price is £500 (£600 / 1.2) and the VAT element is £100. For reduced-rate items at 5%, a £1,200 energy bill includes £57.14 VAT (£1,200 / 1.05 x 0.05).

Source: Based on official HMRC 2025/26 VAT rates. Last updated March 2026.

Frequently Asked Questions

What is the VAT Flat Rate Scheme?
The VAT Flat Rate Scheme (FRS) is a simplified VAT accounting method for small businesses. Instead of calculating VAT on every sale and purchase, you pay a fixed percentage of your VAT-inclusive turnover to HMRC. You keep the difference between what you charge customers at 20% and what you pay HMRC under the flat rate.
Who can use the VAT Flat Rate Scheme?
You can join the FRS if your VAT-taxable turnover (excluding VAT) is £150,000 or less per year. You must leave the scheme if your VAT-inclusive turnover exceeds £230,000 in the past 12 months, or if you expect it to in the next 30 days.
What is the Limited Cost Trader flat rate?
If you spend less than 2% of your VAT-inclusive turnover on goods (or less than £1,000 per year on goods), you are a Limited Cost Trader and must use the flat rate of 16.5%. This was introduced to prevent abuse of the FRS by businesses with very low costs, such as most consultants and contractors.
Is there a first-year discount on the Flat Rate Scheme?
Yes. In your first year of VAT registration, you can deduct 1% from your flat rate percentage. For example, if your sector rate is 14.5%, you pay 13.5% in your first year. This discount applies for the first 12 months from your VAT registration date, not from when you join the FRS.
What is the VAT registration threshold for 2025/26?
The VAT registration threshold is £90,000 for 2025/26. You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any 12-month period. The deregistration threshold is £88,000.
When is the standard VAT scheme better than the Flat Rate Scheme?
The standard scheme is better if you have high VAT-ratable costs (e.g., you buy a lot of goods or services with VAT). Under standard VAT you reclaim input VAT on purchases. Under FRS you generally cannot reclaim input VAT. High-cost businesses such as manufacturers often benefit more from the standard scheme.
Can I reclaim VAT on purchases under the Flat Rate Scheme?
Under the FRS, you generally cannot reclaim input VAT on everyday business purchases. However, you can reclaim VAT on single capital assets costing £2,000 or more (VAT-inclusive). The flat rate payment is designed to cover the net VAT position including a simplified allowance for your purchases.
MB

Mustafa Bilgic

UK tax and financial content specialist. FRS rates sourced from HMRC. Registration threshold £90,000. Last reviewed: 20 February 2026.

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Official Sources

Data verified against official UK government sources. Last checked April 2026.