What is VAT Flat Rate Scheme (FRS)?

The VAT Flat Rate Scheme (FRS) allows eligible businesses to pay a fixed percentage of their gross (VAT-inclusive) turnover to HMRC instead of calculating VAT on every individual transaction. The flat rate percentage varies by trade sector (for example, 12.5% for a management consultant). The scheme is available to businesses with taxable turnover up to £150,000 and simplifies VAT accounting, though businesses cannot reclaim input VAT on most purchases. Limited cost traders — those spending less than 2% or £1,000 of their turnover on goods — must use a flat rate of 16.5%, which often makes the scheme unviable for service businesses.