BusinessCalculator.co.uk

VAT Scheme Comparison Calculator

Compare what you would pay HMRC under standard VAT accounting, the Cash Accounting Scheme and the Flat Rate Scheme, using your own sales, purchases and payment terms.

Using 2026/27 UK tax rates

in £
in £

Standard-rated business costs on which you would normally reclaim VAT.

Pick the category that best describes your main business activity.

in £

Physical goods only. Used for the limited cost business test.

Advanced options
in %
in days
in days

Takes 1 percentage point off the flat rate for the first twelve months.

Estimated annual VAT: standard accounting

£14,400.00

Output VAT on sales
£16,000.00
Input VAT reclaimed
− £1,600.00
Flat Rate Scheme at 16.5%
£15,840.00
Flat rate against standard
+ £1,440.00
Cash accounting: VAT payable
£14,400.00
VAT funded before customers pay
£1,841.10

Relevant goods of 1200.00 are below the limited cost floor of 1920.00 for this turnover.

  • Standard VAT accounting: eligible. Available to every VAT registered business.
  • Cash Accounting Scheme: eligible. Estimated taxable turnover is within the 1,350,000 joining limit.
  • Flat Rate Scheme: eligible. Taxable turnover is within the 150,000 joining limit.
  • Annual Accounting: eligible on turnover against the £1,350,000.00 joining limit. It changes filing and payment dates, not the VAT due.

Based on 2026/27 VAT rules. Estimates only: check the position with your own records before applying to change scheme.

What this means

On these figures, standard accounting costs £14,400.00 of VAT a year and the Flat Rate Scheme costs £15,840.00, a difference of £1,440.00 in favour of standard accounting. Cash accounting pays the same VAT as standard accounting but removes about £1,841.10 of VAT funded before customers pay. A scheme that looks cheaper on paper still has to suit how you invoice, buy and get paid.

Quick answers

Is the Flat Rate Scheme cheaper than standard VAT accounting?
It depends on how much VAT you reclaim. Businesses with few VAT-bearing costs often pay less under the Flat Rate Scheme, while businesses buying a lot of standard-rated goods and services usually pay more, because input VAT recovery is restricted.
What is the Flat Rate Scheme turnover limit?
You can join with taxable turnover of £150,000.00 a year or less excluding VAT, and you must leave once VAT inclusive turnover passes £230,000.00.
What is a limited cost business?
A business whose spending on relevant goods is less than 2% of VAT inclusive turnover, or less than £1,000.00 a year. It pays the limited cost rate of 16.5% whatever its trade sector.
What does the Cash Accounting Scheme change?
The amount of VAT is the same. The timing changes: VAT on a sale becomes due when the customer pays rather than when you invoice, which helps when customers are slow to pay.

Recheck the scheme as turnover changes

Scheme eligibility depends on turnover, and the Flat Rate Scheme result depends on how much you spend on goods, so the best option can change from one year to the next.

You must leave a scheme once you exceed its exit threshold, so it is worth rechecking the figures when sales grow.

You may also find useful

How we calculated it

Standard accounting is output VAT on sales minus input VAT on purchases. Cash accounting produces the same annual figure over a full year and changes only when the VAT falls due, so the difference shows up in working capital rather than in the amount paid.

The Flat Rate Scheme applies your sector percentage to VAT inclusive turnover, so the flat rate is charged on the gross figure including the VAT you collected. If the limited cost test applies, the 16.5% rate replaces the sector percentage. In your first year of VAT registration, 1 percentage point comes off the rate.

The working capital figure estimates the VAT on unpaid sales invoices, using your average customer payment days, less input VAT already claimed on unpaid supplier invoices.

Assumptions

A steady trading year at one VAT rate, no capital goods over £2,000 bought under the Flat Rate Scheme, no partial exemption, no imports or reverse charge supplies, and no zero-rated or exempt mix. The comparison is annual: your actual VAT return positions will vary quarter by quarter.

How this calculator works

Every VAT registered business starts on standard accounting: VAT follows invoice dates. Two optional schemes change that. The Cash Accounting Scheme moves VAT to payment dates, which suits businesses invoicing on credit terms. The Flat Rate Scheme simplifies the calculation by charging a percentage of gross turnover and removing most input VAT recovery, which suits businesses with low VAT-bearing costs such as consultants and some service firms.

Choosing a scheme is separate from deciding whether to register at all. If you are still approaching the VAT registration threshold, check the rolling 12-month test first. For everyday VAT on a single price, use the VAT calculator.

Annual Accounting is a filing and payment arrangement rather than a different calculation: one return a year with instalments through the year. Eligibility against the £1,350,000.00 joining limit is shown with your result.

Worked examples

Consultant with very few costs

Sales of £80,000 and purchases of £4,000 give output VAT of £16,000.00 and input VAT of £800.00, so standard accounting costs £15,200.00. With relevant goods of only £900, the limited cost rate of 16.5% applies to gross turnover of £96,000.00, costing £15,840.00, which is £640.00 more.

Building firm buying materials

Sales of £140,000 with £60,000 of purchases give standard VAT of £16,000.00. At the general building rate of 9.5%, the Flat Rate Scheme costs £15,960.00, which is £40.00 less. Recoverable input VAT is what makes the difference here.

Salon in its first year of registration

Sales of £60,000 give standard VAT of £11,400.00. The hairdressing rate drops by one point to 12% for the first year, giving £8,640.00. The discount ends after twelve months, so check the position again before the second year.

Key terms explained

Output VAT
VAT you charge your customers on taxable sales.
Input VAT
VAT charged to you by suppliers that you can normally reclaim on your VAT return.
Relevant goods
Physical goods used in the business, tested against 2% of VAT inclusive turnover or £1,000.00 a year. Services, fuel for most businesses, capital items and food or drink for staff are excluded.

Common mistakes

  • Applying the flat rate to net turnover

    The flat rate percentage applies to VAT inclusive turnover, not to your net sales figure, which is why the effective cost is higher than the headline percentage suggests.

  • Ignoring the limited cost test

    A low sector percentage counts for nothing if relevant goods fall below the test, because the 16.5% limited cost rate then applies instead.

  • Assuming cash accounting reduces the VAT bill

    It does not change how much VAT you pay over a year. It changes when payment falls due, which helps cash flow rather than profit.

Common questions

Can I use the Cash Accounting Scheme and the Flat Rate Scheme together?

Not as two separate schemes. The Flat Rate Scheme has its own cash based turnover method, which achieves a similar timing effect within the flat rate calculation.

When do I have to leave the Flat Rate Scheme?

You must leave once your VAT inclusive turnover for the year exceeds £230,000.00, or if you expect it to exceed that figure in the next 30 days.

Can I still reclaim VAT on the Flat Rate Scheme?

Generally no. The main exception is a single capital asset purchase costing £2,000 or more including VAT, where input VAT can still be reclaimed.

Does the first year discount apply to the limited cost rate?

Yes. The discount of 1 percentage point applies to whichever rate you are using in your first year of VAT registration.

How is the limited cost test applied in practice?

It is applied for each VAT period rather than once a year, so a business can move in and out of the limited cost rate as its spending on goods changes.

Which scheme is best for a business with slow paying customers?

Cash accounting usually helps most, because VAT on a sale is not due until the customer pays. The calculator estimates how much VAT you are currently funding ahead of payment.

Do I have to tell HMRC to change scheme?

Yes. You apply to join the Flat Rate Scheme, and you should keep records showing the date you started or stopped using any scheme.

Sources

Last reviewed: 12 September 2026 · Statutory rates: 2026/27. This calculator is information only and is not tax, accounting or financial advice.