This calculator compares the Flat Rate Scheme with standard VAT accounting side by side, so you can see which leaves your business better off. Enter your turnover, your costs and your flat rate percentage to get both results.
[ Comparison tool sits here: fields for VAT inclusive turnover, VAT bearing costs, and flat rate percentage. Output shows VAT payable under each method and the difference. ] (tool embeds here)
The two methods in short
Standard VAT accounting You charge VAT on sales, reclaim the VAT on your purchases, and pay HMRC the difference. The more VAT you pay on costs, the less you owe.
Flat Rate Scheme You pay HMRC a fixed percentage of your VAT inclusive turnover. You keep the gap between the VAT you charge and the flat rate you pay, but you usually cannot reclaim VAT on purchases.
How the comparison works
Standard method VAT payable is the VAT you charged on sales minus the VAT you paid on costs. Example: £10,000 VAT charged minus £2,000 VAT on costs is £8,000 to pay.
Flat rate method VAT payable is your VAT inclusive turnover times your flat rate. Example: £72,000 turnover including VAT times 12% is £8,640 to pay.
In this example the standard method is cheaper, because the business has enough VAT bearing costs to make reclaiming worthwhile.
[ Infographic: Flat rate vs standard VAT ]
Brief: two columns side by side. Flat rate: pay a fixed percentage of turnover, keep the gap, cannot reclaim most VAT. Standard: charge VAT, reclaim VAT on costs, pay the difference.
Alt text: A side by side comparison of the Flat Rate Scheme and standard VAT accounting.
Caption: Two ways to work out your VAT, side by side.
Which method suits you
- The Flat Rate Scheme tends to win when your flat rate is low and you have few costs with VAT on them, such as a service business.
- Standard accounting tends to win when you buy a lot of stock, materials or services that carry VAT, because you reclaim more.
The right choice depends on your own numbers, which is why this comparison helps.
Frequently asked questions
How do I compare flat rate and standard VAT? Work out the VAT you would pay under each method, then pick the lower figure. The standard method is your VAT on sales minus your VAT on costs. The flat rate method is your flat rate percentage times your VAT inclusive turnover.
Which VAT scheme is cheaper? It depends on your costs. Businesses with few VAT bearing costs often pay less on the Flat Rate Scheme. Businesses with high VAT costs often pay less on standard accounting.
Can I switch between the two schemes? Yes, within HMRC’s rules. Many businesses review their position each year as their costs and turnover change.