The flat rate VAT scheme is a simplified method of accounting for Value Added Tax (VAT) that can be used by small businesses. It is designed to make it easier for these businesses to calculate and pay VAT to HM Revenue and Customs (HMRC).

Under the flat rate scheme, instead of calculating the amount of VAT you owe on each sale and purchase and deducting one from the other, you pay a fixed percentage of your gross turnover to HMRC each quarter. This percentage depends on your business sector.

For example, let’s say you are a consultant who charges £100 per hour, and you work 160 hours in a quarter. Your gross turnover for the quarter would be £16,000. If the flat rate percentage for your business sector is 14.5%, then you would owe £2,320 in VAT for that quarter. However, you would not be able to reclaim any VAT on your purchases, except for certain capital assets costing over £2,000.

The flat rate scheme is generally most beneficial for businesses with low levels of VATable purchases, as they can pay a lower percentage of their gross turnover than they would under the standard VAT scheme. It also reduces the amount of record-keeping and paperwork required.

However, it’s important to note that not all businesses are eligible for the flat rate scheme, and it may not be the best option for all businesses. If you are unsure whether the flat rate scheme is right for your business, please contact us for more information.