Flat rate vs standard VAT: which suits service businesses in 2026?
Compare VAT yields, admin burden, and pricing impact so you know when to pick the Flat Rate Scheme or standard VAT accounting.
Not tax advice
Toolfy shares operational guidance, but you must confirm CIS and HMRC requirements with a qualified accountant who understands your business.
Flat rate vs standard VAT: which suits service businesses in 2026?
Choosing the wrong VAT scheme costs thousands. Here’s how to decide between the Flat Rate Scheme (FRS) and standard VAT.
Quick comparison
| Feature | Flat Rate | Standard | | --- | --- | --- | | Admin | Simple (1% reduction first year) | Higher (input VAT reclaim) | | Best for | Low input VAT costs | High material purchases | | Threshold | Must exit when turnover > £230k | Same thresholds apply |
Example (£120k turnover, £20k VATable expenses)
- FRS (cleaning services 12%) = £120k × 12% = £14.4k payable
- Standard: Output VAT £20k – Input VAT ~£4k = £16k payable ⇒ In this scenario, FRS wins (£14.4k vs £16k). If expenses were £45k, standard would win.
Decision steps
- Pull Toolfy expense data (materials vs labour).
- Estimate input VAT you’d reclaim under standard method.
- Compare with FRS percentage for your trade (HMRC table).
- Consider growth—FRS doesn’t allow input reclaim on capital items over £2k.
Switching
- You can join FRS once VAT registered; use HMRC form VAT600FRS.
- To leave, notify HMRC (takes effect end of the current quarter).
Toolfy tip
Tag expenses (materials vs overheads) so your accountant can model both schemes quickly.
Need help exporting the data? Ping support@toolfy.io and we’ll prep the CSV for your accountant.
⚠️ Important Disclaimer
This guide is for general informational and educational purposes only. It does not constitute professional advice of any kind (legal, financial, tax, insurance, or otherwise).
Before making business decisions: Consult with qualified professionals (solicitors, accountants, insurance brokers, etc.) who can assess your specific circumstances. Laws, regulations, and industry standards change frequently and vary by location and situation.
Toolfy and the article authors accept no liability for decisions made or actions taken based on information provided in this guide. You are solely responsible for ensuring compliance with all applicable laws and regulations.
Frequently Asked Questions
When is the VAT Flat Rate Scheme better than standard VAT?
When should I choose standard VAT over the Flat Rate Scheme?
How do I decide which VAT scheme is right for my business?
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