A quick explanation of the VAT Flat Rate Scheme (FRS)

In Taxation by Jawaid Yakoob

The flat rate scheme works as follows for Computer and IT consultancy or data processing which has a FRS percentage of 14.5%. Other Common FRS percentages are:

  • Business Services Not listed Elsewhere 12%
  • Management consultancy 14%
  • Lawyer or legal services 14.5%

Billing Customers

You bill your clients as normal adding 20% vat to your services

e.g. £3000+VAT (£600) =£3,600

VAT on expenses

You can’t claim VAT back on your expenses unless an item costs more than £2,000

VAT to pay to HMRC

Based on the above example, you pay over to HMRC 14.5% of £3,600 i.e. £522. You keep £78 (£600-£522) to help cover any VAT on expenses.

In the first year of VAT registration, you pay 1% less than the standard rate, so 13.5 % in above example.

When it makes sense to join the FRS scheme

If the VAT on your expenses is less than the VAT you get to keep, then it is worthwhile registering for the scheme.