Flat Rate VAT Calculator

Last updated: October 2026

Under the UK VAT Flat Rate Scheme, you pay HMRC a fixed sector percentage of your VAT-inclusive turnover, instead of deducting VAT on purchases from VAT on sales. This calculator multiplies your gross turnover by your effective flat rate, compares it with standard VAT accounting, and shows which method leaves you owing less VAT.

Is the Flat Rate Scheme cheaper for you?

The VAT Flat Rate Scheme lets small UK businesses pay HMRC a fixed percentage of their VAT-inclusive turnover instead of tracking VAT on every sale and purchase. Depending on your sector, it can mean less paperwork and a lower VAT bill — or, if you are a limited cost business, a higher one.

This calculator works out exactly what you would owe under the Flat Rate Scheme, compares it with standard VAT accounting, and tells you which is cheaper. For a worked comparison of the two schemes, read our guide to the Flat Rate VAT Scheme vs standard VAT. Sector percentages are taken from HMRC’s official table (VAT Notice 733), including the 1% first-year discount and the 16.5% limited cost business rate.

Rates last reviewed: October 2026. HMRC updates sector rates occasionally — verify against the official source linked below before joining or filing.

How to use it

1. Enter your annual turnover including VAT — the total you invoice customers, VAT included.
2. Choose the business sector that most closely describes what you do. If two fit, use the one that generates most of your turnover.
3. Answer whether this is your first year of VAT registration (for the 1% discount) and whether you are a limited cost business. Not sure about the last one? Choose “Not sure” and enter your annual spend on goods — the calculator runs HMRC’s test for you.
4. Optionally enter the VAT you pay on business purchases each year, so the standard-accounting comparison is accurate.
5. Read your Flat Rate VAT bill, the standard-accounting equivalent, and the verdict on which is cheaper.

What it calculates and how the formulas work

• Flat Rate VAT owed = VAT-inclusive turnover × effective flat rate. The effective rate is your sector rate minus 1% if it is your first year of VAT registration — or 16.5% (15.5% in year one) if you are a limited cost business.
• Output VAT under standard accounting = turnover × 20 ÷ 120. This is the VAT embedded in your gross turnover at the 20% standard rate.
• Standard VAT owed = output VAT − VAT on your purchases (input VAT), which you reclaim under standard accounting but give up under the Flat Rate Scheme.
• Saving = standard VAT owed − Flat Rate VAT owed. Positive means the Flat Rate Scheme is cheaper.

The limited cost business test

You are a limited cost business in any VAT period where your spend on relevant goods (including VAT) is either less than 2% of your VAT-inclusive turnover, or more than 2% but under £1,000 a year (£250 for a quarterly return). Relevant goods exclude services, rent, software, subcontractors, fuel (for most businesses), food and drink, and capital equipment — which is why most freelancers and consultants fail the test.

If you are a limited cost business, your flat rate is 16.5% regardless of your sector. At 16.5% of gross turnover you hand HMRC almost all the VAT you collect (16.5% of gross equals 19.8% of net) while reclaiming nothing on purchases — so standard accounting is usually cheaper. The calculator flags this with a warning.

Worked example: freelance photographer

A photographer invoices £60,000 including VAT in a year. Her sector rate is 11%, she is not in her first year of VAT registration, and she is not a limited cost business.

• Flat Rate VAT: £60,000 × 11% = £6,600 (£1,650 per quarter).
• Standard accounting: output VAT = £60,000 × 20 ÷ 120 = £10,000. She paid £1,200 VAT on equipment and expenses, which she reclaims: £10,000 − £1,200 = £8,800 owed.
• Verdict: the Flat Rate Scheme saves her £2,200 a year — and she skips tracking input VAT on every receipt.

Important considerations and limitations

• This is an estimate, not tax advice. It assumes all your sales are standard-rated at 20% and that any input VAT you enter would be fully recoverable under standard accounting.
• You can only join if your taxable turnover (excluding VAT) is expected to be £150,000 or less in the next 12 months. You must leave if your VAT-inclusive turnover exceeds £230,000 (you may stay if HMRC accepts it will not exceed £191,500 in the next 12 months).
• You cannot use the scheme with the Cash Accounting Scheme, retail schemes, margin schemes, or for supplies subject to the VAT domestic reverse charge.
• You cannot reclaim VAT on purchases under the scheme, except for certain capital assets over £2,000 (see VAT Notice 733, section 15).
• The limited cost test applies per VAT return period — you can move between your sector rate and 16.5% from one quarter to the next.
• You still charge customers VAT at the normal 20% rate and issue proper VAT invoices; the scheme only changes what you pay HMRC.

Frequently asked questions

What is the VAT Flat Rate Scheme?

It is an optional simplification for small UK businesses. Instead of paying HMRC the difference between the VAT you charge customers and the VAT you pay on purchases, you pay a fixed percentage of your VAT-inclusive turnover — set by your business sector — and keep the difference. You cannot reclaim VAT on purchases (with narrow exceptions for large capital assets).

How do I know which flat rate applies to my business?

HMRC publishes a table of 50+ sectors with rates from 4% (retailing food) to 14.5% (accountancy, IT consultancy, legal services). Use the sector that most closely describes what your business will do in the coming year. If your business spans sectors, use the rate for whichever generates most turnover. If nothing fits, use “Any other activity not listed elsewhere” at 12%.

What is a limited cost business?

A business whose spend on relevant goods (including VAT) is less than 2% of its VAT-inclusive turnover, or more than 2% but under £1,000 a year. Relevant goods exclude services, rent, software, subcontractors and capital equipment. Limited cost businesses must use 16.5% regardless of sector, which usually wipes out any saving — most service freelancers fall into this category.

Do I get the 1% discount in my first year?

Yes. In your first year of VAT registration (not your first year of trading, and not your first year on the scheme) you deduct 1% from your flat rate — so 14.5% becomes 13.5%, and the 16.5% limited cost rate becomes 15.5%. HMRC confirms this in VAT Notice 733.

Can I reclaim VAT on purchases under the Flat Rate Scheme?

Generally no — the flat rates already include an allowance for input tax. The main exception is certain capital assets over £2,000, where you can reclaim the VAT separately. Check VAT Notice 733 section 15 before relying on this.

Who can join the Flat Rate Scheme?

VAT-registered businesses expecting taxable turnover of £150,000 or less (excluding VAT) in the next 12 months. You cannot join if you left the scheme in the last 12 months, use margin or capital goods schemes, are in a VAT group, or your business is associated with another in the way HMRC defines.

When must I leave the scheme?

You must leave if your VAT-inclusive turnover in the last 12 months exceeds £230,000 (or you expect it to in the next 30 days), unless HMRC is satisfied it will stay under £191,500 in the next 12 months. You can also leave voluntarily at any time, but must then wait 12 months before rejoining.

Related tools

Compare with the standard calculation on our VAT Calculator, generate compliant paperwork with the Invoice Generator, and check your pricing covers the VAT you pay with the Business Pricing Calculator.

External references

• VAT Flat Rate Scheme — overview and sector rates (GOV.UK)
• VAT Notice 733: Flat Rate Scheme for small businesses (GOV.UK)