Add or remove VAT at any rate, check the £90,000 registration threshold, and compare the Flat Rate Scheme against standard VAT for your real numbers.
| Rate | Applies to |
|---|---|
| Standard — 20% | Most goods and services |
| Reduced — 5% | Domestic fuel and power, some energy-saving products, children's car seats |
| Zero — 0% | Most food, books, children's clothes, public transport |
You must register once your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period — not just your accounting year, any 12 months. You can deregister voluntarily if turnover falls below £88,000. Many small businesses register voluntarily below the threshold anyway, usually to reclaim VAT on startup costs or to look more established to VAT-registered clients.
Instead of tracking VAT on every purchase and sale, the Flat Rate Scheme lets you pay a fixed percentage of your VAT-inclusive turnover to HMRC, based on your trade sector. It's available if your expected VAT-taxable turnover is £150,000 or less. You generally can't reclaim VAT on purchases under this scheme (with an exception for capital assets over £2,000), which is exactly why it tends to suit low-expense service businesses — consultants, freelancers, agencies — much better than businesses with high stock or material costs.
| Trade sector | Flat rate |
|---|---|
| Retail — food, confectionery, newspapers, children's clothing | 4% |
| Restaurants & takeaways | 4% |
| Pubs | 6.5% |
| Hairdressing / beauty treatment | 13% |
| Estate agency / property management | 12% |
| Management consultancy | 14% |
| Computer / IT consultancy | 14.5% |
| Legal services | 14.5% |
| Limited cost trader (goods < 2% of turnover) | 16.5% |
This is a representative sample, not the full list — HMRC publishes the complete A-to-Z of ~55 sectors in VAT Notice 733. New registrants get a 1% discount on their sector rate for their first year.
An IT consultant with £100,000 VAT-inclusive turnover and £12,000 of VAT-inclusive expenses, in their first year of registration: under standard VAT they'd owe roughly £14,667 (output VAT minus reclaimable input VAT). Under the Flat Rate Scheme at their sector's 14.5% rate — 13.5% with the first-year discount — they'd owe £13,500, a saving of £1,167. Low-expense service businesses like this are exactly who the scheme tends to favour; a business with much higher reclaimable expenses could easily see the comparison flip the other way.