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VAT Flat Rate Scheme Calculator
Compare the flat rate scheme against standard VAT on your own numbers, with the 9.5% and 14.5% construction rates and the limited cost trader rate built in.
Materials, fuel, tools and anything else you could reclaim VAT on. Used to work out what the standard scheme would cost you.
Your flat rate sectorHow the Flat Rate Scheme Works
You charge your customers the normal 20% VAT, exactly as you would on the standard scheme. The difference is what you hand over. Instead of paying HMRC the VAT you charged less the VAT on your purchases, you pay a fixed percentage of your VAT inclusive turnover and keep the difference.
The trade off is that you generally cannot reclaim VAT on your purchases. The exception is capital assets costing £2,000 or more including VAT, bought as a single purchase, where a reclaim is still allowed.
Whether it is worth it comes down to one thing: how much VAT you pay out. A labour heavy trade buying very little wins on the flat rate scheme. A trade buying serious quantities of materials usually does not.
The Flat Rate Percentages for Building Trades
- General building or construction services, 9.5%. Where materials you supply are 10% or more of your turnover. Covers most electricians, plumbers, roofers, joiners, plasterers and general builders who supply materials.
- Labour only building or construction services, 14.5%. Where materials you supply are less than 10% of turnover. Common on subcontract work where the main contractor supplies everything.
- Limited cost trader, 16.5%. Applies regardless of your sector if your spend on goods is under 2% of turnover, or under £1,000 a year. It was introduced specifically to stop labour only businesses profiting from the scheme, and at 16.5% it almost always wipes out the benefit.
The limited cost trader test is applied every VAT period, not once when you join. A quiet quarter with almost no materials can drop you into 16.5% for that period alone, so it is worth checking rather than assuming.
The First Year Discount
For the first twelve months from the date you register for VAT, you take one percentage point off your flat rate. General building drops from 9.5% to 8.5%, labour only from 14.5% to 13.5%.
It runs from your VAT registration date, not from the date you joined the flat rate scheme, so joining the scheme late in your first year gives you less of it. If you are registering and intend to use the scheme, apply for both at the same time.
The Domestic Reverse Charge Problem
This is the part that catches construction businesses out. Since March 2021, most business to business construction services within CIS fall under the domestic reverse charge, where you do not charge VAT at all and the customer accounts for it instead.
Reverse charge sales are excluded from your flat rate turnover, which means you cannot apply your flat rate to them and collect the difference. For a subcontractor whose work is mostly reverse charge, the scheme can stop making sense entirely, because the turnover it applies to has largely disappeared while your unreclaimable input VAT has not.
HMRC guidance is explicit that businesses affected by the reverse charge should reconsider whether the flat rate scheme still suits them. If most of your invoices go to contractors rather than to homeowners, check this carefully before joining.
Joining and Leaving
- You can join if your VAT taxable turnover is £150,000 or less excluding VAT, over the next twelve months.
- You must leave once total business income exceeds £230,000 including VAT on the anniversary of joining.
- You can leave voluntarily at any time by writing to HMRC, and there is no penalty for doing so.
- Once you have left, you cannot rejoin for twelve months.
- You still keep full VAT records and file the same returns. The scheme simplifies the calculation, not the paperwork.
Frequently Asked Questions
What is the VAT flat rate for builders and construction?
General building or construction services carry a 9.5% flat rate where the materials you supply are 10% or more of turnover. Labour only building or construction services carry 14.5%. If your spend on goods is under 2% of turnover or under £1,000 a year, the limited cost trader rate of 16.5% overrides both.
Is the VAT flat rate scheme worth it for a tradesperson?
It depends entirely on how much VAT you incur. A labour heavy trade buying very little tends to gain, particularly in the first year with the 1% discount. A trade buying substantial materials usually loses out, because the VAT it can no longer reclaim outweighs the saving. Run your own figures through the calculator above rather than relying on a rule of thumb.
Can I reclaim VAT on the flat rate scheme?
Generally no. The one exception is capital assets bought as a single purchase costing £2,000 or more including VAT, such as a van or a significant piece of plant, where you can still reclaim the VAT in the normal way.
What is a limited cost trader?
A business whose spend on goods is either less than 2% of its VAT inclusive turnover, or less than £1,000 a year. Limited cost traders pay 16.5% regardless of sector. The test is applied every VAT period, so a quarter with unusually low materials spend can push you into it temporarily.
How does the domestic reverse charge affect the flat rate scheme?
Reverse charge sales are excluded from your flat rate turnover, so you cannot apply the flat rate percentage to them. For subcontractors whose work is mostly business to business within CIS, that removes most of the benefit while leaving the loss of input VAT recovery in place. HMRC advises affected businesses to reconsider whether the scheme still suits them.
What is the turnover limit for the flat rate scheme?
You can join with a VAT taxable turnover of £150,000 or less excluding VAT. You must leave when total business income exceeds £230,000 including VAT on the anniversary of joining. Once you leave you cannot rejoin for twelve months.
Flat rate percentages are taken from HMRC VAT Notice 733 and the VAT Flat Rate Scheme manual. This is general guidance for UK trade businesses rather than advice for your circumstances, and the flat rate scheme interacts with the domestic reverse charge in ways worth checking with your accountant before you join.
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