VAT Flat Rate Scheme — Trade Rates 2025/26
The VAT Flat Rate Scheme (VATA 1994 s.26B) lets eligible UK businesses pay a fixed percentage of their VAT-inclusive turnover to HMRC instead of accounting for VAT on every sale and purchase. The rate depends on trade category and ranges from 4% (food/news retailers) to 14.5% (accountants, lawyers, IT consultants, labour-only builders). A 1% discount applies in the first year of VAT registration. The Limited Cost Trader test forces the rate to 16.5% for businesses whose 'relevant goods' spend is under 2% of VAT-inclusive turnover or under £1,000 per year.
Key facts
- Eligibility: expected taxable turnover ≤ £150,000 (ex VAT). Leave at £230,000 (inc VAT).
- 1% discount on your trade rate for the first 12 months of VAT registration.
- Limited Cost Trader rule forces 16.5% on businesses with negligible goods spend.
1. What is the Flat Rate Scheme?
Set out in VATA 1994 s.26B and detailed in VAT Notice 733. You charge customers VAT at the normal rate (usually 20%) but pay HMRC a fixed percentage of your VAT-inclusive turnover. You cannot reclaim input VAT on purchases, except for a single capital asset of £2,000 or more (inc VAT).
2. Eligibility
- To join: expected taxable turnover ≤ £150,000 (ex VAT) in the next 12 months.
- To stay: leave the scheme when total VAT-inclusive income exceeds £230,000.
- First-year discount: 1% off your trade rate for the first 12 months from your VAT effective date of registration.
3. Full Trade Rate Table
Source: VAT Notice 733 Appendix. *Construction rates depend on whether you supply materials (general — 9.5%) or labour only (14.5%). Apply Limited Cost Trader test (Section 4) before relying on these rates.
| Trade category | FRS rate |
|---|---|
| Accountancy or book-keeping | 14.5% |
| Advertising | 11% |
| Agricultural services | 11% |
| Architect, civil and structural engineer or surveyor | 14.5% |
| Boarding or care of animals | 12% |
| Business services not listed elsewhere | 12% |
| Catering services including restaurants and takeaways | 12.5% |
| Computer and IT consultancy or data processing | 14.5% |
| Computer repair services | 10.5% |
| Dealing in waste or scrap | 10.5% |
| Electrical, plumbing, heating or air-conditioning engineer | 9.5% |
| Entertainment or journalism | 12.5% |
| Estate agency or property management services | 12% |
| Farming or agriculture not listed elsewhere | 6.5% |
| Film, radio, television or video production | 13% |
| Financial services | 13.5% |
| Forestry or fishing | 10.5% |
| General building or construction services* | 9.5% |
| Hairdressing or other beauty treatment services | 13% |
| Hiring or renting goods | 9.5% |
| Hotel or accommodation | 10.5% |
| Investigation or security | 12% |
| Labour-only building or construction services* | 14.5% |
| Laundry or dry-cleaning services | 12% |
| Lawyer or legal services | 14.5% |
| Library, archive, museum or other cultural activity | 9.5% |
| Management consultancy | 14% |
| Manufacturing fabricated metal products | 10.5% |
| Manufacturing food | 9% |
| Manufacturing not listed elsewhere | 9.5% |
| Manufacturing yarn, textiles or clothing | 9% |
| Membership organisation | 8% |
| Mining or quarrying | 10% |
| Packaging | 9% |
| Photography | 11% |
| Post offices | 5% |
| Printing | 8.5% |
| Publishing | 11% |
| Pubs | 6.5% |
| Real estate activity not listed elsewhere | 14% |
| Repairing personal or household goods | 10% |
| Repairing vehicles | 8.5% |
| Retailing food, confectionery, tobacco, newspapers or children's clothing | 4% |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8% |
| Retailing vehicles or fuel | 6.5% |
| Retailing not listed elsewhere | 7.5% |
| Secretarial services | 13% |
| Social work | 11% |
| Sport or recreation | 8.5% |
| Transport or storage including couriers, freight, removals and taxis | 10% |
| Travel agency | 10.5% |
| Veterinary medicine | 11% |
| Wholesaling agricultural products | 8% |
| Wholesaling food | 7.5% |
| Wholesaling not listed elsewhere | 8.5% |
| Any other activity not listed elsewhere | 12% |
4. Limited Cost Trader Rule (16.5%)
You're a limited cost trader if your relevant goods spend in a VAT period is either:
- less than 2% of your VAT-inclusive turnover, or
- greater than 2% but less than £1,000 a year (apportioned to the VAT period)
In either case, your FRS rate is forced to 16.5% — regardless of your trade category. "Relevant goods" excludes: services of any kind, capital expenditure goods, food or drink for you or staff, vehicles, vehicle parts and fuel (unless you're a transport business using your own vehicle), goods bought to give away or for re-letting.
5. Worked Examples
Plumber — £60k turnover, £4k materials
VAT-inclusive turnover: £72,000. FRS rate (electrical/plumbing): 9.5%. Goods test: £4,000 > 2% × £72,000 = £1,440 → passes, stays at 9.5%.
FRS VAT payable: £72,000 × 9.5% = £6,840. Standard scheme would owe £12,000 output − ~£800 input = £11,200. FRS saving: ~£4,360.
IT consultant — £90k turnover, £200 relevant goods
Goods spend £200/year is below £1,000 → Limited Cost Trader → forced to 16.5%.
FRS VAT payable: £108,000 × 16.5% = £17,820. Standard scheme: £18,000 output − ~£40 input = £17,960. FRS saving: ~£140 — barely worth the admin.
Photographer — £60k turnover, £3k gear and props
Goods £3,000 > 2% × £72,000 (£1,440) → passes. FRS rate (photography): 11%.
FRS VAT payable: £72,000 × 11% = £7,920. Standard scheme: £12,000 − ~£600 input = £11,400. FRS saving: ~£3,480.
Related
- VAT Scheme Comparison Calculator — Standard vs FRS vs no registration.
- The £90,000 VAT Decision — registration timing and scheme choice.
- Voluntary VAT Registration — decision tree below the threshold.
FAQs
Who can join the VAT Flat Rate Scheme?
Any VAT-registered business expecting taxable turnover of £150,000 or less (ex VAT) in the next 12 months. You must leave the scheme when VAT-inclusive turnover exceeds £230,000.
What is the Limited Cost Trader rate of 16.5%?
Introduced 1 April 2017 to stop the scheme being used purely for tax arbitrage. If your spend on relevant goods is less than 2% of VAT-inclusive turnover OR less than £1,000/year (whichever is greater), your FRS rate is forced to 16.5% — regardless of your trade. 'Relevant goods' excludes services, capital expenditure, food/drink for you or staff, and vehicle costs (fuel, repairs, maintenance).
Can I reclaim VAT on purchases under FRS?
No — that's the trade-off. The one exception is capital goods costing £2,000 or more (inc VAT) bought as a single purchase. You can also reclaim pre-registration input VAT in the normal way.
Is the 1% first-year discount automatic?
Yes — HMRC applies it for the first 12 months from your VAT effective date of registration, not your FRS start date. After 12 months you revert to your full trade-category rate.