VAT Flat Rate Scheme Kelso : Rennie Welch

VAT Flat Rate Scheme

VAT Flat Rate Scheme

I am a self employed consultant and work for several businesses.  As I am now near the VAT registration threshold, I understand I need to register.   However, I have very little to reclaim, perhaps some fuel and office supplies, so not really advantageous to me.  Is there any way around this?

The current VAT threshold is £82,000 and if your business turnover is going to exceed this regularly, and not as a “one off” you have no option but to register for VAT.

However, as you say you have little input VAT to claim I wonder if you have considered the Flat Rate Scheme?  This can be a good move for businesses which have a turnover of under £150,000 and do not have a lot of VAT to reclaim.

The way it works is that whilst you charge customers at 20%, you only declare output VAT at an HMRC Flat Rate percentage.  The concession with this scheme is that you do not claim input VAT except assets costing over £2000.    Your output VAT rate varies on the type of business you operate. 

If for example you were a Management Consultant the flat rate is 14%.   So if you had to invoice for a customer of £10,000 they would issue an invoice as £10,000 plus 20% VAT, £2,000, totalling £12,000.    You would then calculate 14% of the invoice total, £1,680 and this is what would be paid to HMRC.  The difference between the figures of £320 offsets any loss in the VAT reclaimed.

The Flat rate VAT scheme can be used on an invoice or cash basis.  Cash basis would mean that you would not pay any VAT until your customer had paid you, helping cashflow.

You must leave this scheme if your annual taxable turnover exceeds £230,000 and is likely to continue at the level.  This is assessed at the anniversary of you joining the scheme.

The VAT Flat rate scheme is not ideal for everyone, but can be worth considering.

Gail Kristiansen is a Book Keeping Manager for Rennie Welch LLP and can be contacted on 01573 224931 or via email

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