What changes under the scheme
The scheme uses a fixed percentage of relevant VAT-inclusive turnover to work out a payment. It is distinct from the VAT rate charged to a customer. Joining generally requires expected VAT turnover of £150,000 or less excluding VAT, subject to HMRC’s other conditions.
Choose the applicable percentage
The business sector and limited cost business rules affect the percentage. A limited cost business generally uses 16.5%. Check the definition of relevant goods and the period being tested with HMRC; do not use total business expenses as a shortcut.
Build a comparison worksheet
Make one column for a flat rate estimate and another for normal accounting. Keep the same sales assumptions in both. Separately list purchases and their recoverability. Most input VAT is not separately recovered under the scheme, although qualifying capital expenditure exceptions exist.
Interpret the result
At an illustrative 12% rate, £6,000 VAT-inclusive turnover produces a £720 payment estimate. The £5,280 remaining is not profit. Confirm eligibility, the correct rate, applicable turnover and any adjustments before treating an estimate as a return figure.
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Official sources
Sources checked: 2026-09-26. Check the official guidance for later changes.
Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.