2 min read
Definition
The flat rate percentage is the fixed rate a business on the VAT Flat Rate Scheme applies to its VAT-inclusive turnover to work out the VAT it pays, instead of reclaiming input VAT on individual purchases.
In plain terms
Rather than tracking VAT on every purchase, you pay HMRC a set percentage of your total takings. The percentage depends on your trade — but the limited-cost-trader rule can force you to a higher rate.
Why it matters for your company
Choosing the flat rate scheme means the percentage largely determines whether you benefit. Low-cost businesses can fall into the 16.5% limited-cost band, which usually wipes out the advantage — always test it against standard accounting.
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