VAT Flat Rate Scheme UK: Is It Worth It in 2026?

The VAT Flat Rate Scheme lets you pay HMRC a fixed percentage of your VAT-inclusive turnover instead of tracking VAT on every purchase. Since April 2017, low-spend service businesses are pushed onto a punitive 16.5% rate, so run the limited cost trader test before you join.

VAT Flat Rate Scheme: the key facts (2026)

Question	Answer
How it works	You charge customers the normal 20% VAT, but pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover and keep the difference
VAT registration threshold	You must register for VAT once taxable turnover passes GBP 90,000 in any rolling 12 months
Turnover limit to join	Expected VAT taxable turnover of GBP 150,000 or less (excluding VAT) in the next 12 months
When you must leave	Total income including VAT of more than GBP 230,000 at your scheme anniversary (or expected in the next 30 days)
1% first-year discount	A 1% reduction on your flat rate for the first 12 months you are VAT-registered
Limited cost business rate	16.5% - the rate that applies to most low-spend service businesses
Limited cost test	You are a limited cost business if spend on relevant goods (inc VAT) is less than 2% of flat rate turnover, OR less than GBP 1,000 a year (GBP 250 a quarter)
What counts as goods	Physical items used in the business; EXCLUDES services, capital equipment, food and drink for you or staff, and vehicle fuel (unless you are a transport business)