How VAT works
VAT schemes
VAT schemes are designed to simplify the way some VAT-registered businesses calculate and account for VAT to HMRC.
They do not change the amount of VAT businesses charge for their products and services. They are voluntary to join.
VAT Flat Rate Scheme
The VAT Flat Rate Scheme lets you work out what you owe HMRC in VAT as a percentage of your gross turnover.
You can only use this scheme if you’re a small business with an annual taxable turnover of £150,000 or less excluding VAT.
The amount of VAT you pay depends on your industry and type of business.
Other VAT schemes
There are other VAT schemes you may be able to join depending on your VAT taxable turnover and type of business.
If your annual VAT taxable turnover is £1.35 million or less, you may be eligible for the:
- VAT Annual Accounting Scheme - complete one VAT return each year instead of 4
- VAT Cash Accounting Scheme - pay VAT to HMRC when your customer pays you rather than when you invoice them
If you are a retail business or sell second-hand goods, you may be able to use:
- a VAT margin scheme - pay VAT on the value you add to the goods you sell rather than on the full selling price of each item
- one of 3 VAT retail schemes - calculate the VAT once with each VAT return rather than calculating it for each sale you make