21 August 2017

VAT is an extremely tricky and complex area so the aim of this blog is to give you a very basic introduction to the two most common VAT schemes - the Standard Rate scheme and the Flat Rate scheme.

The Flat Rate VAT Scheme

How do you calculate your VAT due to HMRC?

Simple - take the total value of your sales including VAT and multiply by the relevant flat rate %.

Sales invoice£1,000
VAT @ 20%£200
Total value:


VAT due to HMRC:£198

If your Flat Rate VAT % was 16.5% then VAT due to HMRC is £1,200 * 16.5% = £198. Nice and easy.

How do you know your flat rate %?

HMRC recently introduced a blanket percentage of the Flat Rate VAT Scheme (FRVS) 16.5% from 1 April 2017 for businesses that incur “relatively low costs on goods”. It's extremely likely that your flat rate % is or will be 16.5%.

Standard Rate Scheme

How do you calculate your VAT due to HMRC?

You add up the amount of VAT you pay on sales, then deduct it from the amount of VAT you have paid on purchases. The difference is the VAT due to HMRC.

Here is an example which runs through the calculation:


Sales invoice:£1,000
VAT @ 20%£200
Total value:£1,200


You attend a training course and receive the following invoice:

Cost before VAT£500
VAT @ 20%£100
Total value:£600

VAT calculation

VAT due to HMRC calculated as VAT on sales minus VAT on purchases. This is also known as Output VAT minus Input VAT.

Therefore VAT due to HMRC is £200 - £100 = £100

Can you claim back VAT on all purchase?

There are some things which you can't claim VAT back on such as business entertainment. You can find a full list here.If in doubt then always check with us first!

What kind of records do you need to keep?

You should ensure that anything you purchase through the business has a valid VAT receipt and you need to keep it for six years. A valid VAT receipt (electronic/scanned copies are fine) should contain these elements.

  • Your business name on the invoice; you can only recover VAT on invoices issued to your business specifically (or the VAT registered entity if you are a sole trader)
  • The suppliers VAT registration number
  • The rate of VAT charged
  • The value of VAT charged (look out for zero rated or exempt elements of the invoice – do not assume that the whole invoice is a vatable supply)
  • The tax point (the date on which VAT counts as charged)
  • Receipts will not show your business name and often don’t show the VAT separately. You can calculate the VAT included in the total receipt value if the suppliers VAT number is shown on the receipt.

For invoices under £250 the rules are a little more relaxed - see here

HMRC have some information in regards to VAT record keeping here.

What is more tax efficient - Flat Rate or Standard?

All companies are unique, therefore contact us for a tax illustration and we will let you know.