Standard vs Flat Rate VAT Scheme Calculator

Calculate the differences between standard rate and flat rate VAT and what impact this can have on your business.


Chris Andreou

Standard vs Flat Rate VAT Scheme Calculator

Value Added Tax (VAT) is a consumption tax levied on goods and services at every stage of production or distribution. It is an essential component of UK's taxation system, aimed at generating revenue for the government. However, businesses often face complexities in understanding and implementing VAT schemes. Two common VAT schemes are the Standard VAT and the Flat Rate VAT Scheme. In this comprehensive guide, we'll delve into the nuances of each scheme, highlighting their differences and helping businesses make informed decisions.

In the UK, the standard VAT (Value Added Tax) scheme and the flat rate VAT scheme are two different methods of accounting for and paying VAT to HMRC. These schemes have different rules and calculations. Here's an overview of each scheme and how they are calculated.

Standard VAT Scheme

The Standard VAT scheme serves as the default method of VAT accounting for many businesses across the UK. Here's a breakdown of its key features:

  1. VAT Rates: In the UK, VAT rates vary depending on the goods or services provided. Currently, there are three main rates: the standard rate of 20%, the reduced rate of 5%, and zero-rate for certain goods and services. Businesses under the Standard VAT scheme must charge VAT at the appropriate rate on their sales.
  2. VAT Registration: Businesses with taxable turnover exceeding £90,000 over a rolling 12-month period are required to register for VAT. Once registered, businesses must charge VAT on their sales and can reclaim VAT on eligible purchases.
  3. VAT Returns: Registered businesses must submit VAT returns to HMRC on a quarterly basis. These returns detail the VAT charged on sales and the VAT reclaimed on purchases. HMRC then calculates the net VAT liability or refund owed to the business.

How Standard Rate VAT Works

  • Under the standard VAT scheme, businesses calculate VAT based on the actual amounts of VAT they charge on their sales (output VAT) and the VAT they pay on their purchases (input VAT).
  • Businesses must keep detailed records of all their VAT transactions, including invoices and receipts, and report these to HMRC in their VAT returns.

Standard Rate VAT Calculation

  1. Calculate Output VAT: This is the VAT charged on your sales to customers.
  2. Subtract the VAT on any sales returns or discounts from your total output VAT.
  3. If you're on the accrual basis, include VAT on invoices issued but not yet paid.
  4. Calculate Input VAT: This is the VAT paid on your business expenses and purchases.
  5. Subtract the VAT on any purchase returns or discounts from your total input VAT.
  6. If you're on the accrual basis, include VAT on invoices received but not yet paid.
  7. Submit VAT Return: Usually, VAT-registered businesses submit their VAT return every quarter (or monthly for some businesses).
  8. Report the calculated output VAT and input VAT on your VAT return.
  9. Pay the difference to HMRC if your output VAT exceeds your input VAT. If your input VAT is higher, you can claim a refund or carry it forward to the next VAT period.

Flat Rate VAT Scheme

The Flat Rate VAT Scheme offers a simplified approach to VAT accounting, particularly beneficial for small businesses. Here's how it works:

  1. Fixed Percentage: Under the Flat Rate Scheme, businesses apply a fixed percentage to their gross turnover to calculate their VAT liability. The applicable flat rates vary depending on the business sector and are typically lower than the standard VAT rate.
  2. Limited VAT Reclaims: Unlike the Standard VAT scheme, businesses under the Flat Rate Scheme cannot reclaim VAT on most purchases, except for certain capital assets costing £2,000 or more (including VAT).
  3. Flat Rate Scheme Calculation: Calculating VAT under the Flat Rate Scheme is straightforward. Businesses multiply their gross turnover, including VAT, by the applicable flat rate percentage to determine their VAT liability.

How Flat Rate VAT Works

  • The flat rate VAT scheme is a simplified method for small businesses. Instead of calculating VAT based on the actual VAT incurred and charged, businesses apply a fixed percentage to their gross (total) sales to determine the VAT owed to HMRC.
  • Businesses under this scheme do not need to keep detailed records of input and output VAT for most purchases and sales.

Flat Rate VAT Calculation

  1. Determine the Applicable Flat Rate Percentage: Different industries have different flat rate percentages assigned by HMRC. You must choose the rate that corresponds to your business activity.
  2. Calculate VAT Owed: Multiply the flat rate percentage by your gross sales (including VAT). This gives you the total VAT owed to HMRC.
  3. VAT Owed = Gross Sales (including VAT) x Flat Rate Percentage
  4. Submit VAT Return: Report your gross sales and the calculated VAT owed to HMRC in your VAT return.
  5. Keep Records: You are not required to keep detailed records of input and output VAT on most transactions. However, you should still keep records of your sales and purchases for your business accounts.

It's important to note that while the flat rate VAT scheme simplifies VAT calculations, it may not be the most cost-effective option for all businesses.

Difference Between Standard VAT and the Flat Rate VAT Scheme

The decision between the Standard VAT and Flat Rate VAT scheme depends on various factors, including the nature of the business, the volume of transactions, and the ease of record-keeping. Let's explore some key differences between the two schemes to help businesses make an informed choice:

Record-Keeping and Administration:

  • Standard VAT: The Standard VAT scheme involves detailed record-keeping and quarterly VAT returns, which can be time-consuming and complex for some businesses.
  • Flat Rate VAT: Simplifies record-keeping, reducing administrative burden, making it ideal for smaller businesses.

VAT Recovery:

  • Standard VAT: Businesses under the Standard VAT scheme can reclaim VAT on eligible purchases, potentially resulting in significant savings.
  • Flat Rate VAT: VAT recovery is limited, as businesses apply a fixed percentage to their turnover without considering specific input and output tax amounts, making it less advantageous for businesses with high input VAT.


  • Standard VAT: More suitable for businesses of all sizes and sectors, with turnover exceeding the VAT registration threshold i.e £85,000.
  • Flat Rate VAT: Flat Rate Scheme is specifically designed for small businesses with annual turnover below £150,000 (excluding VAT)

Financial Implications:

  • Standard VAT: The financial impact depends on the balance between input and output tax, with potential for VAT reclaims.
  • Flat Rate VAT: The financial impact is determined by the fixed percentage applied to turnover, providing simplicity but limiting VAT recovery.

Standard vs Flat Rate VAT Scheme Calculator

To help businesses understand the complexities of VAT schemes and make informed decisions, Standard vs Flat Rate VAT Scheme Calculator come to the rescue. These online calculator is designed to compare the VAT liabilities under the Standard VAT and Flat Rate VAT schemes based on the business's specific financial data.

How Flat Rate VAT vs Standard Calculator Works:

  1. Input Financial Data: Users enter details such as turnover, expenses, and industry type into the calculator.
  2. Calculate VAT Liabilities: The calculator processes the data and generates VAT liability estimates for both the Standard and Flat Rate VAT schemes.
  3. Comparison and Analysis: Users can compare the estimated VAT liabilities, along with other factors such as cash flow impact and administrative burden, to determine the most suitable scheme for their business.

Depending on your industry and expenses, you may or may not benefit from this scheme. Businesses should carefully consider their circumstances and possibly seek advice from a small business accountant to determine which VAT scheme is most suitable for their needs.

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