Flat Rate VAT Scheme: Are You Entitled to the 1% Rate Reduction?


The VAT Flat Rate Scheme was introduced by HMRC many years ago in a bid to simplify the VAT reporting system for certain smaller businesses. The scheme is available for businesses with a taxable turnover of less than £150,000 and it in a nutshell

  • you pay a fixed percentage rate of VAT to HMRC based on the VAT inclusive amount you bill to your customers;
  • you keep the difference between what you charge your customers and pay to HMRC
  • you can’t reclaim the VAT on any of your purchases, except for certain capital assets over £2,000.

In addition to the above, HMRC offer a 1% discount to the percentage rate applicable to you if it is your first year of VAT registration.

First Year of VAT Registration

This is one year from when you start your effective date of VAT registration (not the date you join the flat rate scheme). You can find this date either within your VAT application or VAT registration certificate.

Let’s suppose your effective date of VAT registration is 1 January 2018 your first year of VAT registration covers the year from 1 January 2018 to 31 December 2018.

Switching from Standard VAT Scheme to Flat Rate VAT Scheme

If you are already VAT registered and decide to more to the Flat Rate VAT scheme then you will only be entitled to claim for the additional 1% discount if you are within your first year of VAT registration.

If you switch from the standard VAT scheme to the Flat Rate VAT Scheme during your first year, you can claim your 1% discounted rate until the first anniversary of your VAT registration.