The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.
With the Flat Rate Scheme:
- you pay a fixed rate of VAT to HMRC
- you keep the difference between what you charge your customers and pay to HMRC
- you cannot reclaim the VAT on your purchases - except for certain capital assets over £2,000
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
Talk to an accountant or tax adviser if you want advice on whether the Flat Rate Scheme is right for you.