Flat Rate VAT Calculator
Understanding Flat Rate VAT
The Flat Rate VAT scheme is a simplified system for VAT-registered businesses in some countries, designed to reduce accounting burdens. Under this scheme, businesses pay a fixed percentage of their VAT-inclusive turnover to the tax authorities, rather than accounting for the difference between the VAT they charge customers and the VAT they pay on their own expenses.
The key principle is that you charge your customers the standard VAT rate, but you remit a lower, fixed percentage of your total sales revenue to the tax office. This fixed percentage varies depending on your business sector. The difference between the VAT you collect and the amount you remit is kept by your business as an additional profit.
How the Flat Rate VAT is Calculated:
When you need to calculate the actual amount of VAT you are liable to pay to the tax authorities under the flat rate scheme, it's a straightforward calculation based on your net sales amount and the specific flat rate percentage applicable to your business sector. You do not deduct input VAT on your purchases.
The formula is:
VAT Payable = Net Amount × (Flat Rate Percentage / 100)
It's important to note that you still charge your customers the standard VAT rate on your sales. The flat rate scheme simplifies the amount you pay *to* the tax authorities.
Example:
Let's say your business operates in a sector with a flat rate of 14%. You have made sales totaling £1,000 (net amount before VAT). You would charge your customer VAT at the standard rate (e.g., 20%), making the total invoice £1,200. However, under the flat rate scheme, you would calculate your VAT liability to the tax office as follows:
VAT Payable = £1,000 × (14 / 100) = £140
In this scenario, you would remit £140 to the tax authorities, while the VAT you charged your customer was £200. The difference of £60 is retained by your business.