VAT flat rate scheme calculator
The flat rate scheme can save small businesses money, or cost them. Compare it with standard VAT on your own figures.
How this is calculated
Standard VAT: you pay 20% of your sales and reclaim the VAT on purchases.
Flat rate scheme: you pay a fixed percentage of your VAT-inclusive turnover and generally reclaim nothing. The percentage depends on your type of business.
Limited cost businesses, which spend less than 2% of VAT-inclusive turnover or less than £1,000 a year on goods, pay 16.5% whatever their sector. There is a 1% discount in your first year of VAT registration.
Rates used · 2026/27
| Limited cost business rate | 16.5% |
| First year discount | 1 percentage point |
| Joining limit | £150,000 taxable turnover, excluding VAT |
| Sector rates | set by HMRC by type of business |
Last checked July 2026. Source: HMRC and gov.uk.
Worked example
With £80,000 of sales and only £1,200 spent on goods, the business is a limited cost business and pays 16.5% of £96,000, so £15,840. Standard VAT would be £16,000 less £800 reclaimed, £15,200, so standard VAT is £640 cheaper.
Common questions
Is the flat rate scheme worth it?
It can be for businesses with few purchases and a low sector rate. For limited cost businesses on 16.5% it often saves little or costs more.
What is a limited cost business?
One that spends less than 2% of its VAT-inclusive turnover, or less than £1,000 a year, on goods. Services, food, drink and vehicle costs do not count as goods for the test.
Can I reclaim VAT on the scheme?
Generally not, except on single capital asset purchases of £2,000 or more including VAT.
How do I join?
Apply to HMRC online or by post, as long as your taxable turnover is £150,000 or less excluding VAT.