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Is the VAT Flat Rate Plan Worthwhile?

VAT is a streamlined plan that can save time and money. Instead of calculating the VAT you must pay to HMRC by subtracting input VAT from output VAT, you pay a fixed percentage of your VAT-inclusive revenue.

By cheap accountantPublished 2 years ago 4 min read

Is taking part in the VAT flat rate system something that would be beneficial?

The value-added tax, sometimes known as VAT, is a system that has been optimized in order to help save unnecessary labour. You pay HMRC a percentage that is fixed in relation to your turnover that includes VAT rather than calculating the amount of VAT that you are responsible for handing over to HMRC by subtracting input VAT from output VAT. This is because you pay HMRC a percentage that is fixed in relation to your turnover. The nature of your business is the primary factor in determining the appropriate ratio.

Who may participate at this gathering?

Your business must be registered for VAT in order for you to be eligible to participate in the VAT flat rate plan. Additionally, you must estimate that your VAT taxable turnover will be no more than £150,000 in order to qualify for the plan. This is the sum of everything that you sell that is subject to VAT but is computed without taking VAT into account. It is important to note that VAT is not included in this total. You will not be authorised to re-enroll in the programme at this time if you left it within the previous year and returned within that time frame.

If your total annual revenue, inclusive of VAT, was larger than £230,000 in the most recent 12 months or if you predict that your total annual revenue will be greater than £230,000 in the coming 30 days alone, you are forced to exit the programme once you have entered it (including VAT).

Figuring out how much value-added tax you owe

The percentage of the flat rate that you pay will be established according to the nature of your company. You should be able to locate the percentages that are relevant to the many different company sectors on the website of the government of the United Kingdom. Because the percentages are lower than the rate of VAT that is charged, it is possible to recover the VAT that was paid on inputs by making use of them.

You will be eligible for a one percent decrease in the percentage that applies to your flat rate if you engage in the plan for the first year. This reduction will only apply to the percentage that applies to your flat rate.

To calculate the amount of value added tax, often known as VAT, that you are obligated to pay to HMRC on a quarterly basis, all you need to do is multiply your total income with the applicable percentage of the fixed rate.


A beauty business is owned and run by Molly, who also works there. Her annual gross revenue comes to £90,000 for the year (not including VAT). In a given VAT quarter, her total revenue comes to £32,400, which includes the VAT that is collected. The flat rate percentage that applies to her sector, which includes hairdressing and other beauty treatments, is 13%. Her industry also includes other beauty treatments. As a direct consequence of this, she is responsible for making a payment to HMRC for the VAT for the quarter in the sum of £4,212. She is exempt from the rules that require her to keep records of her input VAT and calculate the difference between the VAT that she charged and the VAT that she suffered in the quarter.

Organizations that keep their running costs to a minimum

Companies that have limited purchasing power are typically referred to as limited cost firms, and these companies are subject to a distinct set of rules. Companies fall into this category if the amount they spend on goods on an annual basis is either less than 2% of their total income or less than 1,000 pounds.

Limited cost businesses are required to compute the value-added tax (VAT) that they owe to HMRC using the higher rate of 16.5 percent regardless of the industry in which they operate. This obligation exists regardless of the sector in which limited cost businesses compete.

Is there any point in moving forward with this plan?

The plan will cut down on the amount of work that needs to be done, but this labour savings may come at a cost if the price that you would pay according to the standard guidelines is lower than the amount that is decided using the fixed rate percent. The plan will reduce the quantity of work that needs to be done. The only choice that can be made is to perform all computations by hand.

Due to the fact that HMRC must receive 99 percent of the VAT that was collected at a rate of 20 percent, there is very limited room for input VAT recovery. The flat rate percentage for limited cost businesses is 16.5 percent of their sales that includes VAT, which is comparable to 19.8 percent of their net turnover. This could provide a problem for a company that does not spend a significant amount of money on goods but does pay VAT on services and items such as gasoline and promotional items, which are not factored into the calculation. To restate, there is no way around performing the necessary computations in order to establish whether or not the strategy is worth pursuing.

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