VAT Scheme Comparator
Compare Standard VAT against the Flat Rate Scheme for your agency. Includes the Limited Cost Trader test that catches most agencies out.
Your VAT position
VAT element of your business costs (software, freelancers if VAT-registered, equipment). Standard scheme reclaims this; flat rate doesn't.
Spend on physical goods used in business. Excludes services, software, stationery for own use, travel, capital items. If you're an agency, this is usually very low.
Best scheme for you
Standard
Saves £7,640 per year vs the other scheme.
Standard VAT scheme
- VAT collected (20%)
- £36,000
- VAT reclaimed on inputs
- -£8,000
- Net payable to HMRC
- £28,000
Reclaim VAT on costs. Best when your input VAT is meaningful (£8k+ per year).
Flat Rate scheme
Rate applied: 16.5% (Limited Cost Trader)
- VAT-inclusive turnover
- £216,000
- Flat payment @ 16.5%
- £35,640
- Difference vs collected VAT
- +£360
Limited Cost Trader rate (16.5%) applies because your goods spend is below 2% of turnover or £1,000. Rarely beneficial for agencies.
Cash Accounting (consider separately)
Cash Accounting can be combined with either scheme above. It means you account for VAT when you receive payment, not when you raise an invoice. Cash-flow positive if you have long payment terms with clients (60+ days). Available if turnover is under £1.35M.
VAT setup feeling messy?
We handle VAT registration, scheme selection, MTD compliance and quarterly returns for UK agency founders. Fixed fee, no surprises.
Book a free VAT review