Flat rate vs standard VAT
Which scheme actually costs less, on your own numbers.
Turnover, purchases & sector rate
What customers actually pay you across the year, VAT included.
What you'd claim back on materials and overheads under the standard scheme.
The rate HMRC assigns to your trade sector.
Standard scheme saves you
— the standard VAT scheme costs less on these numbers.
A comparison, not advice. This doesn't account for the 1% first-year discount or the limited cost trader rules — check your actual position with an accountant or HMRC.
Most VAT-registered trades pick a scheme once, at registration, and never look at it again — which is fine right up until turnover or spending shifts and the other scheme would quietly be cheaper. The Flat Rate Scheme trades simplicity for a fixed percentage of your VAT-inclusive turnover, handed over regardless of what you actually spent on materials. The standard scheme charges VAT on sales and lets you reclaim it on purchases, so the amount you owe moves with your own numbers. Neither is "better" in general — it depends on how much VAT you're reclaiming on the way in.
Why turnover, not profit, drives this
The flat rate percentage is applied to your gross turnover, including VAT, so a trade that buys very little (mostly labour, few materials) tends to do worse on flat rate than one that's heavy on materials and subcontractors. That's exactly why HMRC assigns different percentages by sector, and why the same trade name can sit anywhere from around 4% to over 14% depending on what the job typically involves. If you're a CIS-registered subcontractor weighing this up, it's worth running the numbers alongside the CIS deduction calculator — CIS and VAT scheme choice both hit the same invoice, and it helps to see the full picture before deciding.
A worked example
Take a plumbing business turning over £60,000 including VAT for the year, reclaiming £3,000 of input VAT on materials and van costs under the standard scheme, on a 10% flat rate. Standard scheme VAT owed works out at £7,000 (£10,000 of output VAT less £3,000 reclaimed). Flat rate VAT owed is £6,000 (10% of £60,000). On these numbers the Flat Rate Scheme saves £1,000 over the year — but push the materials spend up, or drop onto a sector with a lower flat rate percentage, and that gap can close or flip the other way entirely.
Don't forget the reverse charge
If a meaningful chunk of your turnover is construction work billed to another VAT-registered contractor rather than the end customer, the domestic reverse charge changes how VAT actually moves through that invoice — worth checking with the VAT reverse charge calculator alongside this one, since reverse-charge sales can shrink the output VAT you'd otherwise be collecting and change the comparison.
What this isn't
This tool doesn't apply the 1% discount HMRC gives new flat-rate registrants in their first year, which can tip the comparison in flat rate's favour early on regardless of sector. It also doesn't check whether you count as a "limited cost trader" — a rule that forces a 16.5% flat rate on anyone spending too little on goods, whatever their sector's normal percentage says. And it isn't a substitute for confirming your actual HMRC-assigned sector percentage, which can vary from the general assumption used here. Treat this as a starting point for the conversation with your accountant, not the final word.
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