Newsletter Summer 2016

VAT flat rate scheme

This VAT scheme can save small businesses a great deal of hassle. You may even make money by using the scheme, if you are permitted to use a relatively low flat rate, as determined by your business category.

Choosing which category best fits your own business should be straightforward. Describe your business in ordinary language, then check out the list of business categories and their related flat rates online on There is more detail about each category of business in HMRC’s flat rate scheme manual at paragraph FRS7300.

However, there are anomalies in the trade category descriptions. For example, ‘publishing’ covers books, journals, newspapers and sound recordings, and has a flat rate of 11%, but software publishing falls under computer and IT consultancy (flat rate 14.5%). If your business publishes information online as well as software programmes, you need to judge which products generate the majority of your sales, and use the flat rate applicable to the business category that fits the majority of your sales.

You should review your choice of business category on the anniversary of the date on which you started to use the flat rate scheme. At that time you should estimate which products will make up the largest part of your sales in the following year. The new flat rate should be used from the beginning of that year.

You should inform HMRC in writing if you have changed the flat rate you use, the date it changed, and why. This letter should be sent to HMRC within 30 days of the date a different flat rate is used. Don’t hesitate to ask us for help with the flat rate scheme.