Invoicing Under the Flat Rate VAT Scheme

The Flat Rate Scheme: Simplified VAT Accounting

If you use the Flat Rate Scheme (FRS), you pay a fixed percentage of turnover to HMRC instead of calculating standard VAT. But your invoices to customers still show normal VAT. This confuses many businesses.

Who Can Use the Flat Rate Scheme?

• Turnover (VAT-taxable) between £81,000–£191,250
• Must be VAT registered
• Not all business types qualify (check HMRC guidance)

How FRS Works: The Key Points

• You charge customers normal 20% VAT (or applicable rate)
• You pay HMRC a fixed percentage (varies by industry, typically 10–15%)
• The difference is your "saving" (or loss, depending on margin)
• You cannot reclaim input VAT on most purchases

Example: FRS for a Plumbing Business

• FRS flat rate: 10% (for plumbers)
• You invoice a customer £1,200 including 20% VAT (£1,000 + £200 VAT)
• You pay HMRC 10% of £1,200 = £120
• You keep £80 (£200 VAT charged minus £120 paid to HMRC)
• Normally, you'd reclaim input VAT on tools, parts, fuel — but under FRS, you typically cannot

Invoice Format Under FRS

Your invoice looks exactly like a standard VAT invoice — show normal VAT rates (20%, 5%, 0%):

ABC Plumbing Services
VAT Reg: GB 123 4567 89

Invoice to: Customer XYZ
Invoice Number: AP-0078
Date: 12 May 2026

Services
─────────────────────────
Emergency boiler call-out: £400
Labour (2 hours @ £200/hr): £400
Materials (thermostat): £200
─────────────────────────
Subtotal: £1,000
VAT @ 20%: £200
TOTAL: £1,200

The customer sees standard 20% VAT. Behind the scenes, you only pay HMRC 10% (£120), not the full 20% (£200).

FRS Flat Rates by Industry (Examples)

• Accountancy: 20%
• Plumbing: 10%
• Electrician: 14%
• Cleaning: 12%
• Retail (food): 7.5%
• Beauty therapy: 20%

See full list on gov.uk

Can You Reclaim VAT Under FRS?

Generally NO — this is the trade-off. Under FRS, you cannot reclaim VAT on:

• Equipment, tools, supplies
• Fuel and utilities
• Professional services
• Most other business costs

Exception: You CAN reclaim VAT on capital items (vehicles, machinery) costing over £2,000 (including VAT).

When FRS Makes Sense

• High turnover relative to VAT charged (e.g., low-margin business)
• Minimal business purchases (reducing VAT reclaim benefit)
• Simpler accounting (fixed % vs. calculating VAT each month)

When FRS Loses Money

• High business purchases (you lose VAT reclaim advantage)
• High service margins (you're paying more to HMRC than you'd normally owe)

Common Mistakes

• Charging customers a different VAT rate than shown on invoice
• Trying to reclaim VAT on costs (not allowed under FRS, except capital items)
• Not keeping separate records for FRS compliance
• Staying on FRS when you'd benefit from standard VAT accounting

FAQ

Can I switch from FRS to standard VAT accounting?

Yes, anytime. Notify HMRC and update your invoicing.

Do I show my FRS flat rate on the invoice?

No. Show standard VAT rates to customers. FRS is for your HMRC accounting, not customer-facing.

What if my turnover drops below £81,000?

You must leave FRS and either deregister for VAT or switch to standard accounting.