Flat rate scheme

In this lesson

1. 0:00 The flat rate scheme explained
2. 0:15 Eligibility and turnover thresholds
3. 0:42 How the flat rate calculation works
4. 1:45 Worked example: comparing both methods
5. 3:09 When to choose the flat rate scheme

About this lesson

Essential for TX and ATX students preparing for VAT questions in the exam. The flat rate scheme is a simplified VAT method designed for businesses with taxable supplies under £150,000 per year. Instead of tracking individual sales and purchases, you apply a fixed percentage (which varies by industry) to your VAT-inclusive turnover to calculate what you owe HMRC. You must exit the scheme once turnover exceeds £230,000. Importantly, your customers still pay the correct VAT rate on invoices—the flat rate is purely an internal calculation shortcut to reduce your admin burden. In this lesson, you'll work through a practical example comparing the traditional VAT method against the flat rate approach. The flat rate scheme doesn't always produce a lower bill, so the real decision comes down to whether the simplified bookkeeping is worth any additional cost. Understanding when to recommend or use this scheme is a key exam skill, particularly for tax advisers working with smaller VAT-registered businesses.

Duration: 4m