How to Calculate Flat Rate Vat

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Flat Rate VAT Calculator

Note: Use 16.5% if you are a "Limited Cost Trader".

Results

VAT Amount Payable to HMRC: £0.00
Amount Retained After VAT: £0.00
function calculateFlatRateVAT() { var grossTurnover = parseFloat(document.getElementById('grossTurnover').value); var flatRate = parseFloat(document.getElementById('flatRatePercentage').value); var resultArea = document.getElementById('vatResultArea'); if (isNaN(grossTurnover) || isNaN(flatRate) || grossTurnover <= 0 || flatRate < 0) { alert("Please enter valid positive numbers for turnover and percentage."); return; } // The formula for Flat Rate VAT: Gross Turnover (including VAT) * Flat Rate Percentage var vatDue = (grossTurnover * (flatRate / 100)); var retained = grossTurnover – vatDue; document.getElementById('vatPayable').innerText = "£" + vatDue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('netRetained').innerText = "£" + retained.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); resultArea.style.display = "block"; }

Understanding the VAT Flat Rate Scheme (FRS)

The Flat Rate VAT scheme is a simplified accounting method designed by HMRC for small businesses. Unlike the standard VAT scheme, where you calculate the difference between the VAT you charge customers and the VAT you pay to suppliers, the Flat Rate Scheme uses a fixed percentage applied to your total turnover.

How the Calculation Works

Calculating your flat rate VAT is straightforward. The formula is as follows:

VAT Due = Gross Turnover (Total Sales including 20% VAT) × Your Flat Rate Percentage

Example Calculation

Suppose you are an IT consultant with a flat rate of 14.5%.

  • Service Price: £1,000
  • Standard VAT Charged (20%): £200
  • Gross Turnover: £1,200
  • Flat Rate Calculation: £1,200 × 14.5% = £174

In this scenario, you keep the difference (£200 – £174 = £26) as a benefit of the scheme, but you cannot reclaim VAT on most business purchases.

The "Limited Cost Trader" Rule

Since 2017, many service-based businesses fall under the "Limited Cost Trader" category. If your expenditure on relevant goods is less than 2% of your turnover (or less than £1,000 per year), you must use a higher flat rate of 16.5%, regardless of your industry's usual rate.

Eligibility and Benefits

To join the Flat Rate Scheme, your estimated VAT-taxable turnover (excluding VAT) must be £150,000 or less. You must leave the scheme if your turnover exceeds £230,000.

The primary benefits include:

  • Simplified Record Keeping: No need to track VAT on every single receipt.
  • Fixed Percentages: Easier cash flow management and budgeting.
  • First Year Discount: You get a 1% reduction in your flat rate during your first year of VAT registration.

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