At NiS Accountants, we’re often asked whether joining the Flat Rate VAT Scheme (FLEC VAT) is the right choice. The answer? It depends — and many businesses are surprised to find that it may not be as beneficial as it first appears.
What is FLEC VAT?
The Flat Rate VAT Scheme is designed to simplify VAT reporting for small businesses with annual VAT-taxable turnover of £150,000 or less (excluding VAT). Instead of reclaiming VAT on most purchases, you pay a fixed percentage of your gross turnover to HMRC — the percentage depends on your industry.
For example, many service-based businesses (e.g. accountants or consultants) pay around 14.5% of gross turnover.
Is It Really Good For You?
Many assume FLEC VAT saves money. That’s not always the case. Here’s where it helps — and where it doesn’t.
✅When It Can Be Beneficial
- Low business expenses: If you don’t buy many goods or services that include VAT, the scheme may reduce admin and sometimes save tax.
- Simplicity: Calculations are more straightforward, with no need to track and reclaim most input VAT.
- Start-up year discount: You get a 1% discount in your first year of VAT registration under the scheme.
❌When It’s Not Beneficial
- You buy goods or materials frequently: You won’t be able to reclaim input VAT on most purchases.
- You’re classed as a ‘limited cost trader’: If you spend very little on goods (excluding services), you may have to pay a higher flat rate of 16.5%, making the scheme unviable.
- Turnover close to the threshold: If you’re approaching £150,000 in VATable turnover, leaving the scheme later can create transitional complications.
Misconceptions Cleared
- “You always save money” – Not true. In fact, many pay more VAT under the scheme.
- “It applies to net sales” – No, the flat rate is applied to your gross turnover including VAT.
- “You can still reclaim VAT on everything” – Under FLEC, you generally cannot reclaim input VAT, unless it’s on certain capital assets over £2,000.
Is FLEC Right for Your Business?
There’s no one-size-fits-all. At NiS Accountants, we assess your figures and VAT profile to determine if the Flat Rate Scheme actually benefits you — or if standard VAT accounting would be more tax-efficient.
Need help deciding?
Book a free VAT review with one of our experts below.
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