UK VAT — Scheme comparison
Standard vs Flat Rate vs Cash Accounting
Three UK VAT schemes, one decision. This page reduces "which scheme should I use?" to a side-by-side of eligibility, mechanics, and the actual numbers for an £80,000-net business. Every rule cites the relevant HMRC notice with a "last reviewed" date.
At-a-glance — same business, three schemes
Worked example: a freelance designer with £80,000 net annual turnover (i.e. £96,000 gross at 20%), £2,400 of recoverable input VAT on standard-rated purchases. Limited Cost Trader status assumed for Flat Rate.
| Metric | Standard Scheme | Flat Rate Scheme (LCT) | Cash Accounting (variant of Standard) |
|---|---|---|---|
| Output VAT (annual) | £ 16,000.00 | £ 15,840.00 | £ 16,000.00 |
| Input VAT reclaimed | £2,400.00 | £0.00 (FRS rule) | £2,400.00 (only on paid invoices) |
| Net VAT owed (annual) | £ 13,600.00 | £ 15,840.00 | £ 13,600.00 |
| Per quarter | £ 3,400.00 | £ 3,960.00 | £ 3,400.00 |
For this £80K business: Standard wins by £ 2,240.00/year against Flat Rate LCT. The Flat Rate advantage flips if your input VAT is below ~£1,400/year.
Eligibility — who can use each scheme
| Rule | Standard | Flat Rate | Cash Accounting |
|---|---|---|---|
| Turnover threshold (annual) | Any | Join: ≤£150K excl. VAT · Leave: >£230K incl. VAT | Join: ≤£1.35m · Leave: >£1.6m |
| VAT registered required? | Yes (above £90K rolling 12-month) | Yes | Yes |
| Input VAT reclaim | Yes on most purchases | No (exception: single capital purchase >£2K gross) | Yes, but only after the bill is paid |
| Reporting period | Quarter / month / year | Quarter / month / year | Quarter / month / year |
| HMRC source | — | VAT Notice 733 | VAT Notice 731 |
Source: HMRC — VAT rates · Last reviewed 2026-05-12 · Source: HMRC — Flat Rate Scheme (VAT Notice 733) · Last reviewed 2026-05-12 · Source: HMRC — Cash Accounting Scheme (VAT Notice 731) · Last reviewed 2026-05-12
Decision logic — pick a scheme
- Do you have significant VAT-able purchases? If yes → Standard. If no → consider Flat Rate.
- Are your customers slow to pay (60+ days)? If yes → consider adding Cash Accounting on top of Standard.
- Is your business mostly services (Limited Cost Trader)? If yes and Flat Rate, expect the 16.5% rate, not your sector's lower one. Re-test against Standard.
- Is annual turnover near £150K? If yes → Flat Rate is not for you (you'll have to leave when you cross £230K gross anyway).
- Are you in your first year of VAT registration? If yes and on Flat Rate → claim the -1% first-year discount.
Switching schemes
Standard is the default. To join Flat Rate: apply online via your VAT account; it takes effect the start of the next VAT period. To leave Flat Rate: notify HMRC; you must leave once your gross turnover exceeds £230,000 in a 12-month period (anti-avoidance: must include all sales). Cash Accounting is opt-in at the start of any VAT period and opt-out the same way — no HMRC permission needed either way.
Source: HMRC — Flat Rate Scheme (VAT Notice 733) · Last reviewed 2026-05-12
Frequently asked questions
Which VAT scheme is best for a service-only freelancer?
For most service freelancers with low VAT-able costs, the Flat Rate Scheme is simpler but often more expensive than Standard once the Limited Cost Trader rule (16.5%) is applied. Test both with our calculator — the difference is usually a few percent of turnover.
Can I use Cash Accounting and the Flat Rate Scheme together?
No. Flat Rate already operates on a cash basis by design. You choose one OR the other, not both. Standard Scheme + Cash Accounting can be combined.
What's the Limited Cost Trader rate?
16.5% — applied to gross (VAT-inclusive) turnover if your goods cost less than 2% of turnover or under £1,000/year. Most professional services fall into this category, which often makes Flat Rate worse than Standard.
When does Cash Accounting actually help?
When your customers pay slowly (60+ days) and you want to defer your VAT liability until you've been paid. The trade-off is you can only reclaim input VAT on purchases you've actually paid — fine for most service businesses, problematic if you buy a lot on credit.
Can I switch schemes mid-year?
Yes, but with restrictions. You can join Flat Rate at any VAT quarter-end if eligible. You can leave Flat Rate at any time (it takes effect the next quarter). Cash Accounting can be joined or left at the start of any VAT quarter. Standard is the default.
Does VATLY support all three schemes?
Standard Scheme and Flat Rate Scheme are live in our calculator and dashboard. Cash Accounting is a timing variant of Standard — the maths is the same, the difference is when each transaction is recognised. We track when your customers pay via the CSV import (Phase 7b).