● 2026/27 · Flat Rate Scheme · Small business

VAT Flat Rate Calculator

Q: How does the VAT Flat Rate Scheme work?

You charge customers the normal 20% VAT but pay HMRC a fixed flat-rate percentage of your gross (VAT-inclusive) turnover. You keep the difference but generally can't reclaim VAT on purchases, except certain capital assets over £2,000.

Q: What is the limited cost trader rate?

If your spending on goods is less than 2% of turnover (or under £1,000 a year), you're a 'limited cost trader' and must use the 16.5% flat rate, which removes almost all the benefit of the scheme for low-cost service businesses.

Q: Is the Flat Rate Scheme worth it?

It can be worthwhile for service businesses with low VAT-able costs and a favourable sector rate, especially with the 1% first-year discount. Since the limited cost trader rule, many low-cost consultants find standard VAT accounting is better — this calculator compares the two.

On the VAT Flat Rate Scheme you charge 20% but pay HMRC a fixed percentage. Enter your turnover and sector rate to see what you'd pay, the surplus you'd keep, and whether the limited-cost trader rule applies.

📊 Flat rate vs standard 🎁 1% first-year discount 📅 2026/27 rates

Flat Rate Scheme VAT

What you pay vs what you charge

Net turnover (excluding VAT)

Your flat rate %

First year on scheme?

Limited cost trader?

How the Flat Rate Scheme works

The Flat Rate Scheme (FRS) simplifies VAT for small businesses with turnover under £150,000. You still charge customers the standard 20%, but instead of tracking VAT on every purchase, you pay HMRC a single flat percentage of your gross (VAT-inclusive) turnover. The percentage depends on your business sector — from around 4% to 14.5%. The catch: you generally can't reclaim VAT on what you buy.

Sector	Flat rate
IT / management consultancy	14.5%
Accountancy / bookkeeping	14.5%
Hairdressing	13%
Retailing food	4%
Limited cost trader	16.5%

The limited cost trader trap. If your goods spending is under 2% of turnover (or below £1,000 a year), you're forced onto the 16.5% rate — which on a 20% charge leaves almost no surplus. This rule wiped out the FRS benefit for many low-cost consultants and contractors.

Should you use it?

FRS can still win for service businesses with a favourable sector rate and the 1% first-year discount. Run your everyday VAT on the standard VAT calculator, and if you contract through a company, model the rest of your take-home on the contractor take-home calculator and corporation tax calculator.

Flat Rate Scheme FAQs

How does the VAT Flat Rate Scheme work?

You charge 20% but pay HMRC a fixed % of gross turnover, keeping the difference. You generally can't reclaim VAT on purchases.

What is the limited cost trader rate?

16.5%, forced on businesses spending under 2% of turnover (or below £1,000/yr) on goods — it removes most of the benefit.

Is the Flat Rate Scheme worth it?

It can be, for service businesses with a low sector rate and low VAT-able costs, especially with the 1% first-year discount.

What's the turnover limit to join?

You can join if expected VAT-able turnover (excluding VAT) is £150,000 or less, and must leave once it exceeds £230,000.

VAT charged to customers (20%)	£0
Gross turnover (inc VAT)	£0
Flat rate applied	0%
VAT paid to HMRC	£0
Surplus you keep	£0