Flat Rate Scheme
Glossary
Flat Rate Scheme
The VAT Flat Rate Scheme (FRS) is a simplified UK VAT scheme for small businesses where you pay HMRC a fixed percentage of your gross VAT-inclusive turnover, rather than calculating output VAT minus input VAT on each transaction.
Eligible if your VAT-taxable turnover (excluding VAT) is under £150,000. The flat rate varies by trade — ranging from about 4% to 14.5%. You still charge customers VAT at the normal rates but only hand over the flat rate to HMRC. The catch: "limited cost traders" (low spend on goods relative to turnover) pay a punitive 16.5% rate, making FRS rarely worthwhile for service businesses with few physical goods. New businesses get a 1% discount in the first year.
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