VAT Flat Rate Scheme calculator
Work out whether the Flat Rate Scheme actually saves you money, and whether the limited cost trader rule catches you.
Rates for 2026/27, verified 7 August 2026 against VAT Flat Rate Scheme
- Flat rate applied
- 16.5%
- Really, of net sales
- 19.8%
- VAT due — flat rate
- £15,840
- VAT due — standard
- £15,000
You are a limited cost trader.You spend £500 a year on goods, below the £1,920 threshold (2% of gross turnover, or £1,000, whichever is greater). That puts you on 16.5% regardless of your sector — which is 19.8% of your net sales. This rule was introduced in 2017 specifically to stop consultants and contractors profiting from the scheme, and it makes the Flat Rate Scheme a poor deal for most service businesses.
The percentage is not what it looks like.The flat rate applies to your VAT-inclusive turnover, so a 16.5% rate is really 19.8% of what you actually invoice before VAT. On £80,000 of net sales you charge £16,000 of VAT and hand over £15,840 of it.
| Flat rate | Standard | |
|---|---|---|
| VAT charged to customers | £16,000 | £16,000 |
| VAT reclaimed on purchases | £0 | £1,000 |
| Rate applied | 16.5% of gross | 20% of net |
| VAT payable to HMRC | £15,840 | £15,000 |
How the Flat Rate Scheme works
Under standard VAT accounting you charge 20% on sales, reclaim the VAT on purchases, and pay HMRC the difference. Under the Flat Rate Scheme you still charge customers 20%, but you hand HMRC a fixed percentage of your turnover and reclaim nothing on purchases (other than capital assets over £2,000). The appeal is simplicity, and for some businesses a small profit.
The percentage is not what it appears
This trips almost everyone up. The flat rate applies to your VAT-inclusive turnover, not your net sales. A headline rate of 14.5% is really 17.4% of what you actually invoice before VAT, because 14.5% of 120 is 17.4% of 100.
The limited cost trader rule
Introduced in April 2017 specifically to stop consultants and contractors profiting from the scheme. If your spend on goods is less than 2% of gross turnover, or less than £1,000 a year, whichever is greater, you pay 16.5% regardless of your sector.
That is 19.8% of net sales, against the 20% you charged. It leaves you almost nothing while removing your ability to reclaim input VAT — so for most service businesses the scheme is now a loss.
The definition of goods is narrow and catches people out. It excludes software and downloads, rent, phone and broadband, travel and fuel, accountancy and other professional services, marketing, subcontractors, and any capital item. Physical stock, stationery, cleaning products and materials count.
When the scheme still wins
When your sector rate is low relative to what you charge and you have genuinely little input VAT to reclaim — but enough goods spend to avoid the limited cost trader rule. Retailers and trades buying materials are the usual beneficiaries. There is also a 1 percentage point discount for the first year of VAT registration.
Common flat rate percentages
| Sector | Flat rate | Effective on net sales |
|---|---|---|
| Accountancy or book-keeping | 14.5% | 17.4% |
| Any other activity not listed elsewhere | 12% | 14.4% |
| Computer and IT consultancy or data processing | 14.5% | 17.4% |
| General building or construction services | 9.5% | 11.4% |
| Hairdressing or other beauty treatment services | 13% | 15.6% |
| Management consultancy | 14% | 16.8% |
| Photography | 11% | 13.2% |
| Retailing not listed elsewhere | 7.5% | 9% |
| Transport or storage, including couriers, freight, removals and taxis | 10% | 12% |
| Limited cost trader (any sector) | 16.5% | 19.8% |
| Compulsory registration | £90,000 rolling 12-month turnover |
| Deregistration | £88,000 |
| Join the Flat Rate Scheme | £150,000 or less, excluding VAT |
| Must leave the Flat Rate Scheme | Above £230,000 including VAT |
What this calculator does not cover
- Capital assets over £2,000. You can still reclaim VAT on a single purchase of capital goods costing £2,000 or more including VAT, even on the scheme.
- Zero-rated and exempt sales. The flat rate applies to all turnover including zero-rated sales, which usually makes the scheme a poor fit for businesses with significant zero-rated income.
- Mixed sector businesses. If you do more than one thing you use the rate for the activity making up the greater part of turnover, which can be a judgement call.
- Making Tax Digital. You must still keep digital records and file through compatible software, whichever scheme you use.
- The limited cost test is applied each period, not annually. A business can move in and out of the 16.5% rate quarter by quarter.
Frequently asked questions
Is the VAT Flat Rate Scheme worth it for a consultant?
Almost never since April 2017. Consultants rarely spend enough on physical goods to escape the limited cost trader rule, so they pay 16.5% of gross turnover — about 19.8% of net sales — while being unable to reclaim any input VAT. Standard accounting is usually better.
What counts as goods for the limited cost trader test?
Physical items used in the business: stock, materials, stationery, cleaning products, office supplies. It excludes services of any kind, plus food and drink, vehicles and fuel (unless you are a transport business), and any capital item. Software, rent, phone bills, accountancy and subcontractors do not count.
Why is a 14.5% flat rate really 17.4%?
Because the flat rate applies to your VAT-inclusive turnover. On £100,000 of net sales you invoice £120,000 including VAT, and 14.5% of £120,000 is £17,400 — 17.4% of the £100,000 you actually earned.
Can I leave the Flat Rate Scheme?
Yes, at any time, by writing to HMRC. You must leave if your gross turnover in the last 12 months exceeded £230,000, or if you expect it to exceed that in the next 30 days. Once you leave voluntarily you cannot rejoin for 12 months.
Do I still charge my customers 20%?
Yes. Your invoices are unchanged and your customers still reclaim the full 20% if they are VAT registered. The scheme only changes what you hand over to HMRC and your ability to reclaim input VAT.
Should I register for VAT voluntarily?
It depends on your customers. If they are VAT-registered businesses, registering lets you reclaim input VAT at no real cost to them. If they are consumers, registering means either a 20% price rise or a 17% cut in your margin, so voluntary registration usually hurts.
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Tax year 2026/27 · How we calculate · All rates and sources · What changed