The Flat Rate Scheme is usually sold as a simplicity win, but it's also a real financial bet: you're trading the ability to reclaim input VAT for a flat percentage of turnover. That bet pays off at low expense levels and loses at high ones — and the crossover point is closer than most people expect.
A £100,000-turnover IT consultancy (14.5% sector rate), at four different expense levels:
| Annual expenses | Flat Rate owed | Standard VAT owed | Flat Rate result |
|---|---|---|---|
| £2,000 | £14,500 | £16,333 | Saves £1,833 |
| £12,000 | £14,500 | £14,667 | Saves £167 |
| £25,000 | £14,500 | £12,500 | Costs £2,000 extra |
| £40,000 | £14,500 | £10,000 | Costs £4,500 extra |
The flat rate payment doesn’t move — it’s always 14.5% of the same £100,000 turnover. Standard VAT owed keeps falling as expenses (and their reclaimable input VAT) rise. Somewhere around £12–13k of expenses on this turnover, the lines cross.
A business that joins the Flat Rate Scheme early, when expenses are genuinely low, can end up worse off a year or two later once it's spending more on equipment, subcontractors, or stock — without necessarily noticing, because nobody re-runs the comparison after the initial decision.
Enter your actual turnover, expenses and sector rate to see exactly where you land.
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