How to choose the appropriate flat rate percentage

Produced by Tolley
How to choose the appropriate flat rate percentage

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • How to choose the appropriate flat rate percentage
  • Choosing a business category
  • Temporary reduced rate from 15 July 2020 - 31 March 2022
  • How to determine which flat rate to apply
  • Multiple business activities
  • 1% reduction for new businesses
  • Flat rate scheme percentage rates
  • Limited cost businesses
  • Anti-forestalling measures
  • VAT return period spans 1 April 2017
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point intime, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

Choosing a business category

There are a range of flat rate percentages that should be applied to different business activities. A business electing to use the flat rate scheme must determine which business sector best describes the type of business activity that will be undertaken for the next 12 months. Only one percentage can be applied to all sales made by a business using the scheme so it is important to choose the most appropriate business sector. If a business chooses the wrong business sector it may use the wrong percentage to calculate the VAT due on sales. This could lead to the imposition of penalties and / or interest charges by HMRC if it considers that the percentage is too low. Also if the business chooses a percentage that is too high then it will overpay VAT to HMRC which means less profits will be made by the business.

A list of the categories and their corresponding flat rate percentage rates can be found below.

See Example 1, Example 2 and Example 3.

Temporary reduced rate from 15 July 2020 - 31 March 2022

See the Hospitality industry ― temporary reduced rate from 15 July 2020 - 31 March 2022 guidance note for more information.

How to determine which flat rate to apply

The following steps will enable the business or its adviser to determine which flat rate percentage that should be applied to the business activities inquestion:

StepAction requiredAdditional considerations
1Check to see whether the

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