General Information
The flat rate scheme for small businesses was set up to reduce the administrative burden imposed when operating VAT. Under the scheme a set percentage is applied to the turnover of a business as a one-off calculation instead of having to identify and record VAT on each sale/purchase made.
Who Can Join?
The scheme is optional and open to businesses whose annual taxable turnover does not exceed £150,000.
A business may not operate the scheme until it has received notification that its application has been accepted and HMRC has confirmed the date of commencement.
How the Scheme Operates
VAT due is calculated by applying a pre-determined flat rate percentage to business VAT Inclusive turnover during a VAT period.
Percentage rates are determined according to the trade sector that the business operates in. The table below provides a summary of current percentages. In addition to the figures quoted, there is a further 1% reduction off the normal rates for businesses in their first year of VAT registration.
Although VAT is paid at the relevant flat rate percentage, a business is still required to prepare invoices to VAT registered customers showing the normal rate of VAT. This allows customers to reclaim input VAT at the appropriate rate.
Treatment of Capital Assets
The purchase of capital assets costing more than £2,000 (including VAT) may be dealt with outside the scheme. Businesses can claim input VAT on such items on their VAT return in the conventional way.
Note - where the input VAT is reclaimed, businesses must account for VAT on the subsequent sale of the asset at the normal rate instead of the flat rate.
Records to Keep
Under the scheme, businesses must keep a record of their flat rate calculation showing:
- flat rate turnover
- the flat rate percentage used
- the tax calculated as due
Important Update
In April 2017, a new 16.5% trade classification was introduced for Limited Cost Traders. This is likely to have a significant (negative) impact on most freelance contractors who operate via their own limited companies.
Please click here for more information.
How Champion Help
Champion will advise whether the flat rate scheme will be beneficial to your business and will help you to operate it.
APPENDIX: Table of Sectors and Rates
| Trade Sector |
% |
Trade Sector |
% |
Trade Sector |
% |
| Accountancy or book-keeping |
14.5 |
Hiring or renting goods |
9.5 |
Publishing |
11 |
| Advertising |
11 |
Hotel or accommodation |
10.5 |
Pubs |
6.5 |
| Agricultural services |
11 |
Investigation or security |
12 |
Real estate activity not listed elsewhere |
14 |
| Any other activity not listed elsewhere |
12 |
Labour-only building or construction services* |
14.5 |
Repairing personal or household goods |
10 |
| Architect, civil and structural engineer or surveyor |
14.5 |
Laundry or dry-cleaning services |
12 |
Repairing vehicles |
8.5 |
| Boarding or care of animals |
12 |
Lawyer or legal services |
14.5 |
Retailing food, confectionary, tobacco, newspapers or children's clothing |
4 |
| Business services that are not listed elsewhere |
12 |
Library, archive, museum or other cultural activity |
9.5 |
Retailing pharmaceuticals, medical goods, cosmetics or toiletries |
8 |
| Catering services including restaurants and takeaways |
12.5 |
Management consultancy |
14 |
Retailing that is not listed elsewhere |
7.5 |
| Computer and IT consultancy or data processing |
14.5 |
Manufacturing that is not listed elsewhere |
9.5 |
Retailing vehicles or fuel |
6.5 |
| Computer repair services |
10.5 |
Manufacturing fabricated metal products |
10.5 |
Secretarial services |
13 |
| Dealing in waste or scrap |
10.5 |
Manufacturing food |
9 |
Social work |
11 |
| Entertainment or journalism |
12.5 |
>Manufacturing yarn, textiles or clothing |
9 |
Sport or recreation |
8.5 |
| Estate agency or property management services |
12 |
Membership organisation |
8 |
Transport or storage, including couriers, freight, removals and taxis |
10 |
| Farming or agriculture that is not listed elsewhere |
6.5 |
Mining or quarrying |
10 |
Travel agency |
10.5 |
| Film, radio, television or video production |
13 |
Packaging |
9 |
Veterinary medicine |
11 |
| Financial services |
13.5 |
Photography |
11 |
Wholesaling agricultural products |
8 |
| Forestry or fishing |
10.5 |
Post offices |
5 |
Wholesaling food |
7.5 |
| General building or construction services* |
9.5 |
Printing |
8.5 |
Wholesaling that is not listed elsewhere |
8.5 |
"Labour-only building or construction services" means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are "general building or construction services". |
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
Contact Us
For more information and advice simply request a call back or contact one of our advisors on 0161 703 2549 or by email info@championcontractors.co.uk who will be more than happy to help you.