VAT Calculator

If your VAT taxable turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total VAT-inclusive turnover. Although you cannot reclaim VAT on purchases - it is taken into account in calculating the flat rate percentage - the Flat Rate Scheme can reduce the time that you need to spend on accounting for and working out your VAT. Even though you still need to show a VAT amount on each sales invoice, you don't need to record how much VAT you charge on every sale in your accounts. Nor do you need to record the VAT you pay on every purchase.

If you register for the Flat Rate Scheme in your first year of VAT registration, you can take advantage of a one per cent reduction in your flat rate percentage.

If you're Flat Rate VAT registered you charge VAT to your clients at the full VAT rate (17.5% before the 4th of January 2011 and 20% after the 4th of January 2011) and you pay over VAT to HMRC at the Flat Rate VAT Persentage (always a lower rate). The difference (the amount you can keep) is the Flat Rate Allowance.

If you register for the Flat Rate Scheme in your first year of VAT registration, you can take advantage of a one per cent reduction in your flat rate percentage.

For the first year of your flat rate VAT registration the flat rate VAT persentage at which you have to pay VAT over to HMRC is reduced (discounted) by 1%.

So for instance if your flat rate VAT persentage is 14% you will only pay VAT over to HMRC at 13% for the first year.

You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:

• Your estimated VAT taxable turnover - excluding VAT - in the next year will be £150,000 or less. Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies. It excludes the actual VAT that you charge, VAT exempt sales and sales of any capital assets.

Generally you don't reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000 - see the section in this guide on claiming back VAT on capital assets for the rules and restrictions.

A business must leave the flat rate VAT scheme if the total value of it's tax inclusive supplies in the year (excluding sales of capital assets) is more than £225,000.

If you are businesses that supply VAT taxable goods or services to your clients then you have to register for VAT if either:

• your turnover for the previous 12 months has gone over the VAT threshold (currently £70,000 excluding VAT)
• you think your turnover will soon go over the VAT threshold (currently £70,000 excluding VAT)

A business can however also register even though the taxable turnover falls below the VAT threshold, this is called voluntary registration. A business can only claim back VAT paid on purchases and expenses if the business is VAT registered. Careful consideration needs to be applied when voluntarily registering for VAT as the business will need to charge VAT on all VAT taxable supplies and this could mean an increase in costs if the customers are not VAT registered.

• If you are not registered for VAT
• you were in the scheme and left during the previous 12 months
• you are, or have been within the previous 24 months, registered for VAT as the division of a larger business, or as part of a group, or you are eligible to do so
• you use one of the margin schemes for second-hand goods, art, antiques and collectibles, the Tour Operators' Margin Scheme, or the Capital Goods Scheme
• you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year
• your business is closely associated with another business

• You don't have to record the VAT that you charge on every sale and purchase, as you would with standard VAT accounting. This can mean you spending less time on the books, and more time on your business. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting.
• A first year discount. If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered.
• Fewer rules to follow. You no longer have to work out what VAT on purchases you can and can't reclaim
• Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right
• Certainty. You always know what percentage of your takings you will have to pay to HMRC

The flat rate percentages are calculated in a way that takes into account zero-rated and exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the VAT Flat Rate Scheme might not be right for your business if

• you buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases
• you regularly receive a VAT repayment under standard VAT accounting
• You make a lot of zero-rated or exempt sales

There is a range of flat rate percentages that correspond to different business sectors. You must choose the sector that best describes your main business activity for the coming year. You must only use one percentage. So if you work in more than one business sector, you must use the one that represents the greater part of your turnover. You then apply that percentage to your total turnover

First year discount: There's a one per cent reduction in the flat rate percentages for your first year of VAT registration. So if you are in your first year of VAT registration, you can reduce the flat rate percentage for your sector by one, until the day before the first anniversary of your VAT registration. This discount applies even if the flat rate percentage for your sector changes during your first year of registration

You calculate your VAT payable to HMRC by applying your flat rate VAT percentage to your 'flat rate turnover'. If you are still in your first year of VAT registration, remember to reduce your flat rate percentage by one

Your flat rate turnover is all the supplies your business makes including all:

• VAT inclusive sales for standard rate, zero rate and reduced rate supplies
• sales of exempt supplies, such as rent or lottery commission - you don't have to make any partial exemption calculations
• Sales of capital expenditure goods - unless you have previously reclaimed the VAT, in which case they must be accounted for at the standard rate and not the flat rate
• sales to other EU countries
• bank interest received on a business account
• sales of second-hand goods - but if you sell a lot of these, you may be better off leaving the Flat Rate Scheme and using a margin scheme

Do not include:

• services you've purchased from outside the UK that you've had to reverse charge
• disbursements - costs you pass on to your clients that meet the necessary VAT conditions
• private income, for example income from shares
• the proceeds from the sale of goods you own but which have not been used in your business
• any sales of gold that are covered by the VAT Act, Section 55 - see the link below
• non-business income and any supplies outside the scope of UK VAT
• sales of capital expenditure goods on which you have claimed back the VAT you paid