Flat rate scheme (FRS) — operating the scheme | Tax Guidance

Flat rate scheme (FRS) — operating the scheme

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note sets out how to operate the flat rate scheme (FRS).

For an overview of the FRS more broadly, see the Flat rate scheme (FRS) - overview guidance note.

See also De Voil Indirect Tax Service V2.199B and V2.199C.

Operating the FRS - the basics

A business operating the flat rate scheme (FRS) must choose, from a prescribed list of sectors, the sector which most closely describes its type of business. A set ‘flat rate percentage’ is applicable to each sector.

In simple terms, this flat rate percentage is applied to the VAT inclusive turnover of the business to calculate VAT due to HMRC for a period. This means that the business is not required to keep detailed input tax records to work out exactly how much VAT can be reclaimed on costs. Instead, a notional amount of VAT recovery is built into the flat rate percentage.

For example, an accountant operating the FRS is likely to choose ‘accountancy or book-keeping’ as its type of business. The applicable

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