What is the Flat Rate Scheme?
The VAT Flat Rate Scheme (FRS) is a simplified way for small businesses to account for VAT. Instead of recording the VAT on every sale and purchase, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover.
You still charge customers VAT at the standard rate (20% for most supplies), but you only pay HMRC the flat rate percentage for your sector. The difference is profit — which HMRC treats as compensation for the input VAT you can no longer reclaim on most purchases.
A marketing consultant charges £10,000 + £2,000 VAT = £12,000 gross. Under FRS at 11%, they pay HMRC £12,000 × 11% = £1,320. They keep £2,000 − £1,320 = £680 extra profit.
Who Can Join the Flat Rate Scheme?
✅ You Can Join If:
- You are VAT-registered
- Your expected taxable turnover in the next 12 months is no more than £150,000 (exc. VAT)
❌ You Cannot Join If:
- You left the FRS in the last 12 months
- You joined a VAT group in the last 24 months
- You made zero-rated supplies in the previous 12 months
- You were convicted of VAT fraud
- Your turnover exceeded £230,000 (you must leave the scheme)
Limited Cost Traders — The 2017 Rule Change
⚠️ Important: Are You a Limited Cost Trader?
From April 2017, if your costs on goods are less than 2% of your turnover (or less than £1,000 per year), you are classed as a "limited cost trader" and must use a flat rate of 16.5%, regardless of your sector.
This rule was introduced specifically to target service-based businesses (consultants, IT contractors, freelancers) who were making large profits from the scheme without having significant goods costs. For many of these businesses, 16.5% makes the FRS unprofitable compared to standard VAT accounting.
"Goods" for this purpose means physical goods only — not services, food, fuel for vehicles, or capital expenditure. If you are primarily a service business, carefully check whether the limited cost trader rate applies before joining.
All HMRC Flat Rate Categories (2026)
The rate you use depends on your business sector. Use the sector that most closely describes your main business activity.
| Business Type | Flat Rate |
|---|---|
| Accountancy or book-keeping | 14.5% |
| Advertising | 11% |
| Agricultural services | 11% |
| Any other activity not listed elsewhere | 12% |
| Architect, civil and structural engineer or surveyor | 14.5% |
| Boarding or care of animals | 12% |
| Business services that are not listed elsewhere | 12% |
| Catering services including restaurants and takeaways | 12.5% |
| Computer and IT consultancy or data processing | 14.5% |
| Computer repair services | 10.5% |
| Debt collecting or factoring | 12% |
| Dentistry | 8.5% |
| Designing | 14.5% |
| Entertainment or journalism | 12.5% |
| Estate agency or property management services | 12% |
| Farming or agriculture that is not listed elsewhere | 6.5% |
| Film, radio, television or video production | 13% |
| Financial services | 13.5% |
| Forestry or fishing | 10.5% |
| General building or construction services (not covered below) | 9.5% |
| Hairdressing or other beauty treatment services | 13% |
| Hiring or renting goods | 9.5% |
| Hotel or accommodation | 10.5% |
| Investigation or security | 12% |
| Labour-only building or construction services | 14.5% |
| Laundry or dry-cleaning services | 12% |
| Lawyer or legal services | 14.5% |
| Library, archive, museum or other cultural activity | 9.5% |
| Management consultancy | 14% |
| Manufacturing fabricated metal products | 10.5% |
| Manufacturing that is not listed elsewhere | 9.5% |
| Manufacturing yarn, textiles or clothing | 9% |
| Membership organisation | 8% |
| Mining or quarrying | 10% |
| Packaging | 9% |
| Photography | 11% |
| Post offices | 5% |
| Printing | 8.5% |
| Publishing | 11% |
| Pubs | 6.5% |
| Real estate activity not listed elsewhere | 14% |
| Repairing personal or household goods | 10% |
| Repairing vehicles | 8.5% |
| Retailing food, confectionery, tobacco, newspapers or children's clothing | 4% |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8% |
| Retailing that is not listed elsewhere | 7.5% |
| Retailing vehicles or fuel | 6.5% |
| Secretarial services | 13% |
| Social work | 11% |
| Sport or recreation | 8.5% |
| Travel agency | 10.5% |
| Veterinary medicine | 11% |
| Wholesaling agricultural products | 8% |
| Wholesaling food | 7.5% |
| Wholesaling that is not listed elsewhere | 8.5% |
How to Join the Flat Rate Scheme
- 1Register for VAT with HMRC if you haven't already
- 2Log in to your HMRC Business Tax Account at tax.service.gov.uk
- 3Navigate to "VAT" and select "Flat Rate Scheme"
- 4Select your business sector and confirm your turnover is within the threshold
- 5HMRC will confirm your flat rate percentage and the date from which it applies