The VAT Flat Rate Scheme (FRS) is designed by HMRC to simplify the tax records of small businesses. Instead of calculating the VAT difference between every single purchase and sale, you pay a fixed rate of VAT to HMRC based on your turnover.
How the Calculation Works
Unlike the standard scheme where you pay 20% of your net sales minus the VAT you've paid on expenses, the Flat Rate Scheme works differently:
You still charge your customers the standard VAT rate (currently 20%).
You calculate your Gross Turnover (Net Sales + the 20% VAT you collected).
You apply your sector-specific Flat Rate percentage to this Gross Turnover figure.
The result is what you pay to HMRC.
You keep the difference as profit.
First Year Discount
If it is your first year of VAT registration, HMRC allows you to reduce your sector's flat rate by 1%. This discount applies until the day before your first anniversary of becoming VAT registered. Our calculator includes a checkbox to apply this reduction automatically.
Common Flat Rates by Sector
The rate you use depends on your business activity. If you act across multiple sectors, you must use the rate for the business activity that generates the highest turnover. Below are common examples (rates subject to change by HMRC):
Business Sector
Flat Rate (%)
Accountancy & Law
14.5%
Advertising
11%
Computer & IT Consultancy
14.5%
General Building/Construction
9.5%
Hairdressing
13%
Management Consultancy
14%
Journalism or Entertaining
12.5%
Retailing (not food/news/children's clothing)
7.5%
Limited Cost Trader Rules
Be aware of the "Limited Cost Trader" rule. If your business spends less than 2% of its turnover on goods (not services), or less than £1,000 a year, you may be forced to use a higher flat rate of 16.5% regardless of your sector. This often removes the financial benefit of the scheme.
Pros and Cons
Pros: Simplified bookkeeping (no need to record VAT on every purchase), potential financial gain if your flat rate is lower than the effective rate of standard VAT, and the 1% first-year discount.
Cons: You cannot reclaim VAT on purchases (except for certain capital assets over £2,000), and if you are a "Limited Cost Trader," you might pay more tax than on the standard scheme.
Disclaimer: This calculator is for illustrative purposes only. VAT rules can be complex and subject to change. Always consult a qualified accountant or the official HMRC guidance before submitting your VAT returns.
function calculateVat() {
// Get Inputs
var netTurnover = parseFloat(document.getElementById("netTurnover").value);
var flatRatePercent = parseFloat(document.getElementById("flatRatePercent").value);
var vatOnExpenses = parseFloat(document.getElementById("vatOnExpenses").value);
var firstYearDiscount = document.getElementById("firstYearDiscount").checked;
// Validation
if (isNaN(netTurnover) || netTurnover < 0) {
alert("Please enter a valid Net Turnover amount.");
return;
}
if (isNaN(flatRatePercent) || flatRatePercent < 0) {
alert("Please enter a valid Flat Rate percentage.");
return;
}
if (isNaN(vatOnExpenses)) {
vatOnExpenses = 0; // Default to 0 if empty
}
// 1. Calculate Standard VAT Logic (What you charged the customer)
var standardVatRate = 0.20;
var vatCharged = netTurnover * standardVatRate;
var grossTurnover = netTurnover + vatCharged;
// 2. Determine Effective Flat Rate
var effectiveRate = flatRatePercent;
if (firstYearDiscount) {
effectiveRate = effectiveRate – 1;
// Prevent negative rate
if (effectiveRate < 0) effectiveRate = 0;
}
// 3. Calculate Flat Rate Liability
var flatRatePayable = grossTurnover * (effectiveRate / 100);
// 4. Calculate Standard Scheme Liability (for comparison)
// Standard Liability = VAT Charged – VAT on Expenses
var standardLiability = vatCharged – vatOnExpenses;
if (standardLiability 0) {
verdictElement.innerHTML = "You save " + formatGBP.format(savings) + " on the Flat Rate Scheme.";
} else if (savings < 0) {
verdictElement.innerHTML = "You pay " + formatGBP.format(Math.abs(savings)) + " MORE on the Flat Rate Scheme.";
} else {
verdictElement.innerHTML = "The liability is the same for both schemes.";
}
}