Flat Rate VAT Scheme

A simplified UK VAT scheme where businesses pay a fixed percentage of their turnover to HMRC instead of calculating exact VAT on every transaction, available to businesses with turnover under £150,000.

For some service businesses, the flat rate scheme results in paying less VAT than the standard scheme, creating a small profit. It also dramatically reduces VAT admin.

A consultant registers for the Flat Rate Scheme at 14.5%. She charges 20% VAT on invoices but pays HMRC only 14.5%, keeping the 5.5% difference as profit in the first year.