Calculator
UK VAT Flat Rate Scheme Calculator (2026/27)
Runs the Limited Cost Trader test honestly (most contractors fail it and pay 16.5%, not the published sector rate), applies the 1pp first-year discount, and shows your gain or loss versus charging 20% with no input reclaim.
Reviewed 28 April 2026 · 2026/27 rates verifiedVAT due to HMRC under FRS
£15,840
+£160 gain vs charging 20% · LCT 16.5%
Show full breakdown
Where the maths goes
| Net turnover (excl. VAT) | £80,000.00 |
|---|---|
| VAT-inclusive turnoverNet × 1.20 — the figure FRS percentages apply to | £96,000.00 |
| VAT charged to customers @ 20%What you collect on sales — paid to you, not yours to keep | £16,000.00 |
| Sector rate (published)Computer & IT consultancy | 14.5% |
| Limited Cost Trader rate appliedGoods spend £0 — no goods reported | 16.5% |
| Effective rate applied | 16.5% |
| VAT due to HMRC under FRS£96,000.00 × 16.5% | −£15,840.00 |
| FRS gain (you keep)VAT charged to customers minus VAT due under FRS | +£160.00 |
Sensitivity: how goods spend changes the result
At your turnover of £80,000 and computer & it consultancy sector. The threshold to escape LCT here is £1,920/year of goods (whichever is higher of 2% × VAT-inclusive turnover or £1,000).
| Goods spend | Effective rate | FRS gain / loss |
|---|---|---|
| £0 | 16.5% | +£160 |
| £500 | 16.5% | +£160 |
| £1,000 | 16.5% | +£160 |
| £1,500 | 16.5% | +£160 |
| £2,000 | 14.5% | +£2,080 |
| £3,000 | 14.5% | +£2,080 |
| £5,000 | 14.5% | +£2,080 |
How the Flat Rate Scheme actually works
Under standard VAT, you charge 20% on sales (output VAT), reclaim 20% on qualifying purchases (input VAT), and pay HMRC the difference each quarter. Under the Flat Rate Scheme, you still charge customers 20%, but you pay HMRC a flat percentage of your VAT-inclusive turnover instead. The difference between the 20% you collect and the lower percentage you pay is your gain.
The percentage depends on your sector
VAT Notice 733 publishes a list of about 50 sectors with rates from 4% (food retailing) to 14.5% (computer & IT consultancy, accountancy, legal). The lower the published rate, the more you keep, except the Limited Cost Trader rule overrides this for most service contractors.
The Limited Cost Trader (LCT) rule
Added in April 2017 specifically to stop service-only businesses from extracting VAT-margin from FRS (see our full LCT test guide for the longer story). If your annual goods spend is less than 2% of your VAT-inclusive turnover OR less than £1,000, you must use the 16.5% LCT rate regardless of your published sector rate. "Goods" means physical items only — laptops, stock, raw materials, consumables. It excludes services, software, professional fees, accommodation, vehicle costs, fuel, food, and drink.
For an £80,000-turnover IT consultant with £0 goods spend, this means: VAT-inclusive turnover £96,000; LCT triggers; effective rate 16.5%; pay HMRC £15,840; charge customers £16,000; gain £160. Net of the lost input-VAT recovery on laptops, software subscriptions, and accountancy fees, standard VAT would usually leave the contractor better off by several hundred to a couple of thousand pounds.
The first-year discount
For your first 12 months as a VAT-registered business, the effective rate (whichever it is, sector rate or LCT 16.5%) is reduced by 1 percentage point. The discount runs from VAT registration date, not from the date you joined FRS. For a typical IT contractor on LCT, this means the effective rate is 15.5% in year one, then 16.5% from year two onwards.
How FRS gets reported
You file a quarterly VAT return through MTD-compatible software (FreeAgent, Xero, QuickBooks). The return is a single calculation: VAT-inclusive turnover × your effective rate. There's no input-VAT reclaim line beyond the £2,000 capital-asset exception. Customer invoices still show 20% VAT, the customer can't tell you're on FRS.
What this calculator doesn't cover
- Standard-VAT comparison with input reclaim — this calculator computes the FRS gain vs charging 20% with no reclaim. The actual standard-VAT alternative depends on your specific expense mix (which receipts have VAT, which don't). For an exact apples-to-apples comparison you need your own numbers, and an accountant can model both for you.
- Capital asset reclaim under FRS: single asset purchases over £2,000 VAT-inclusive (e.g. a £3,000 laptop) can have their input VAT reclaimed even on FRS. Not modelled here.
- Mixed-rate businesses: businesses with zero-rated, reduced-rate, or exempt sales alongside standard-rated have to apportion their FRS calculation. Outside this calculator's scope.
- EU and international sales: exports, reverse-charge supplies, and VAT MOSS/OSS interact with FRS in ways that need bespoke modelling.
- Pre-2017 LCT-exempt period: the LCT rule applies from April 2017. Returns covering earlier periods use only the published sector rate.
- VAT registration threshold logic: you must register for VAT once turnover exceeds £90,000 (the current threshold). This calculator assumes you're already registered; it doesn't advise on whether to register voluntarily or compulsorily.
Frequently asked questions
- Who can join the VAT Flat Rate Scheme?
- Any VAT-registered business with annual VAT-exclusive turnover up to £150,000. You apply via VAT600 FRS or in your VAT account. You don't have to be on FRS, most contractors register for VAT first and decide later. You can leave at any time, but once you leave you can't rejoin for 12 months.
- What's the Limited Cost Trader (LCT) rule and why does it matter?
- Introduced April 2017 specifically to stop service-only businesses from gaming FRS. If your goods spend is below 2% of VAT-inclusive turnover OR below £1,000/year, you must use the 16.5% LCT rate regardless of sector. 'Goods' means physical items (laptops, stock, raw materials), NOT services, software, professional fees, accommodation, vehicle costs, or food/drink. Most IT consultants, accountants, and management consultants fail the test and end up as LCTs paying 16.5%, which is typically WORSE than standard VAT after input reclaim.
- When does FRS actually save a contractor money?
- Three conditions in combination: (1) you're NOT a Limited Cost Trader, meaning your goods spend genuinely clears the 2% / £1,000 thresholds; (2) your sector rate is below 16.5%; and (3) you have minimal reclaimable input VAT under standard VAT (otherwise standard VAT lets you reclaim more). For service-only contractors, this combination is rare. For tradespeople with material costs (general building, decorators), it's common. Use the calculator's sensitivity table to find your specific break-even goods spend.
- Why is the sensitivity table useful?
- It shows the gain/loss across goods-spend levels, so you can see exactly how much you'd need to spend on physical goods (e.g. £1,920/year at £80k turnover, IT consultancy) before the LCT rule stops applying and you drop from 16.5% to 14.5%. That's the threshold that determines whether FRS works for you. The table makes the qualifying figure explicit, most calculators just show the result at your current goods spend, which hides the decision-relevant question.
- What's the first-year discount?
- In your first 12 months as a VAT-registered business, your effective rate is reduced by 1 percentage point. So an LCT pays 15.5% (instead of 16.5%) in year one, and an IT consultancy NOT triggering LCT pays 13.5% (instead of 14.5%). The discount applies to whichever rate the LCT test resolves to, sector rate or 16.5%. Important: it's 12 months from the date you registered for VAT, not the date you joined FRS, and not the calendar year.
- When do I have to leave FRS?
- You must leave when your VAT-inclusive turnover exceeds £230,000 in the previous 12 months, or HMRC tells you to leave. You can also choose to leave at any time. Once you leave, there's a 12-month cooldown before you can rejoin. This matters for growing contractors: if you cross £230k in mid-year, you exit FRS for the rest of that year and at least the next 12 months.
- Does FRS change how much VAT I charge customers?
- No. You still charge customers 20% VAT on standard-rated supplies just like under standard VAT accounting. The difference is only how much of that 20% you pass on to HMRC: under FRS you pay a flat percentage of VAT-inclusive turnover; under standard VAT you pay the difference between output VAT and reclaimable input VAT. What changes is your margin between the two, not the price you quote.
- Can I reclaim VAT on purchases under FRS?
- Mostly no. Under FRS you cannot reclaim input VAT on day-to-day expenses, that's the trade-off for the simpler flat-rate calculation. You CAN reclaim VAT on capital assets costing over £2,000 VAT-inclusive (the 'capital expenditure goods' rule). And you keep claiming for pre-registration purchases that would have been allowed normally. For most service contractors, the lost input-VAT recovery is what makes LCT-rated FRS worse than standard VAT.
- Do I need MTD-compatible software for FRS?
- Yes. Making Tax Digital (MTD) for VAT is mandatory for all VAT-registered businesses regardless of turnover or scheme since April 2022. You must keep digital records and submit VAT returns via approved software (FreeAgent, Xero, QuickBooks, etc.). Most accountancy SaaS supports FRS, it's a checkbox in the VAT settings, and the calculation logic is the same as in this tool.
- How does FRS interact with corporation tax for limited companies?
- Two threads to keep separate. (1) On the VAT side, the FRS gain/loss flows through to your P&L: you keep the difference between 20% charged and the lower percentage paid as 'other income', which is taxable. (2) On the corporation tax side, that gain reduces your apparent margin slightly because it's taxed at 19/25/26.5%. But it doesn't change the structural calculation, corporation tax is computed on your full P&L regardless of VAT scheme. See our outside-IR35 Ltd calculator if you want the full revenue-to-net chain that includes corporation tax.
Related calculators
Outside IR35 (Ltd)
Full Ltd money flow including corporation tax.
Dividend tax
Tax on dividends after the £500 allowance.
Salary–dividend split
Optimal director-salary level at your revenue.
Related guides
Deep dive
Limited Cost Trader test
Why most service contractors fail the LCT test, what counts as ‘goods’, breakeven scenarios.
Setting up a limited company
7 steps from name reservation to first invoice, VAT registration is step 6.
Pension via limited company
Employer pension contributions, CT relief, and the £60k annual allowance with worked example.
Reviewed: 28 April 2026 · See how we calculate · not financial advice.