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The VAT flat rate scheme and limited cost traders

Under the flat rate scheme a business pays a fixed percentage of its VAT-inclusive turnover. A limited cost business pays 16.5%.

Accountin · Last checked 2 October 2026

Questions

Who can join?

A business that expects VAT taxable turnover of £150,000 or less, excluding VAT, in the next 12 months.

When must a business leave?

If on the anniversary of joining its turnover in the last 12 months was over £230,000 including VAT, or is expected to be in the next 12 months. Also if it expects turnover of more than £230,000 in the next 30 days alone.

What is a limited cost business?

One whose spending on goods is less than 2% of its turnover, or more than 2% and less than £1,000 a year. It uses the flat rate of 16.5%.

Is there a first-year discount?

Yes. A business gets 1% off its flat rate in its first year of VAT registration.

How does Accountin test it?

In VAT settings choose to test every return, and tick the purchase accounts that hold relevant goods. Each return then applies 16.5% or the sector rate.

Related guides

VAT registration and deregistration thresholdsThe £90,000 VAT registration threshold, the past 12 months and next 30 days tests, effective dates, the £88,000 deregistration threshold and exceptions.The VAT cash accounting schemeWho can use VAT cash accounting, the £1.35 million joining and £1.6 million leaving limits, excluded transactions and what to do with VAT on leaving.The VAT annual accounting schemeHow the VAT annual accounting scheme works: the £1.35 million and £1.6 million limits, 9 monthly or 3 quarterly payments, and the 2-month return.VAT partial exemption and the de minimis testsHow partly exempt businesses recover VAT: the standard method, rounding, the £625 a month de minimis limit, simplified tests and the annual adjustment.

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