Is the flat rate scheme worth it?

It depends on your sector percentage and how much VAT you incur on costs. Low-cost service businesses often gain; anyone caught by the 16.5% limited cost trader rate usually doesn't.

What is cash accounting for VAT?

You account for VAT when money actually moves rather than when invoices are raised — so you never pay HMRC VAT on an invoice your customer hasn't paid.

Can I change VAT scheme?

Yes, subject to eligibility and timing rules. Reviewing the scheme annually as your business changes is good practice — the right answer at registration isn't always right two years on.

VAT

Flat rate, standard or cash accounting: choosing your VAT scheme

By Concorde Company Solutions · 16 August 2026

Registering for VAT is one decision; choosing how you account for it is another — and the scheme you pick changes both what you pay and how much admin you carry. Most businesses default to whatever they started with and never look again. That's worth fixing.

Standard VAT accounting

The default: charge VAT on sales, reclaim VAT on purchases, pay HMRC the difference each quarter, based on invoice dates. Maximum accuracy, full reclaim of input VAT, works for everyone. The drawback is cashflow: raise a big invoice in March and the VAT is due to HMRC even if the customer pays in June.

Cash accounting

Same sums, different timing: VAT is accounted for when money moves. You never hand HMRC VAT on an unpaid invoice — which, if your customers pay slowly, is a genuine and permanent cashflow advantage. Available up to a turnover threshold, and for most small service businesses with slow payers it's the quiet winner nobody told them about.

The flat rate scheme

Designed for simplicity: charge VAT normally, but pay HMRC a fixed percentage of gross turnover based on your sector, and give up reclaiming VAT on most purchases (capital items over £2,000 aside). Whether it pays depends entirely on the gap between your sector rate and what you'd pay under standard rules. Two big caveats: the limited cost trader rate of 16.5% catches businesses with minimal goods spend and usually erases the benefit; and the scheme rewards low-cost businesses while punishing anyone with meaningful VATable overheads. The 1% first-year discount sweetens year one only.

Annual accounting

One return a year with instalments through it — less filing, more predictability, but you're estimating through the year and settling later. Suits stable, predictable businesses that hate quarterly admin.

How to actually choose

Model it — this is a half-hour calculation, not a philosophy. Your sector rate, your input VAT, your customers' payment speed and your appetite for admin give a clear answer, and the answer changes as the business does. We run this comparison as standard when setting up VAT for clients, and re-check it at year-end — several clients are hundreds of pounds a year better off from a ten-minute scheme switch. If yours has never been reviewed, that's low-hanging fruit.

This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.

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