VAT Scheme Comparator
Compare Standard VAT and the Flat Rate Scheme for your agency. Automatically applies the Limited Cost Trader test (most agencies fail it and must use the 16.5% rate, making flat rate unattractive).
VAT Scheme Comparator
Compare Standard VAT and the Flat Rate Scheme for your agency. Automatically applies the Limited Cost Trader test (most agencies fail it and must use the 16.5% rate, making flat rate unattractive).
Your net (ex-VAT) invoiced revenue.
VAT you pay on business purchases that you can reclaim on the standard scheme.
Physical goods bought for the business. Most agencies spend very little here, triggering the Limited Cost Trader 16.5% flat rate.
Flat Rate Scheme is typically unfavourable for agencies that fail the Limited Cost Trader test. Verify with your accountant before switching.
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Standard versus Flat Rate side by side, with the limited-cost-trader test built in. Agencies are nearly always limited-cost traders (16.5% rate on gross turnover), so the standard scheme usually wins after reclaiming input VAT.
| A | B | C | D | E | F | G | H | I | J | K | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Your figures (edit the blue cells) | ||||||||||
| 2 | Turnover (ex-VAT) | £180,000 | |||||||||
| 3 | Input VAT claimable | £8,000 | |||||||||
| 4 | Annual goods spend | £500 | |||||||||
| 5 | VAT comparison | ||||||||||
| 6 | Standard scheme net to HMRC | £28,000 | |||||||||
| 7 | Limited-cost trader? | Yes (16.5% rate) | |||||||||
| 8 | Flat Rate payment | £35,640 | |||||||||
| 9 | Best scheme: Standard (saves £7,640 vs Flat Rate) | ||||||||||
| 10 | |||||||||||
| 11 | |||||||||||
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Standard vs Flat Rate for agencies
On the Standard scheme you charge 20% VAT and can reclaim input VAT on purchases. On the Flat Rate Scheme you charge 20% to clients but pay HMRC a flat percentage of your VAT-inclusive turnover instead of tracking input/output separately.
Most agencies trigger the Limited Cost Trader (LCT) test because their goods spend is low (below 2% of VAT-inclusive turnover or £1,000/year). LCT companies must use the 16.5% flat rate, which usually makes the Flat Rate Scheme more expensive than standard.
Frequently asked questions
- What is the Limited Cost Trader test?
- If your VAT-inclusive goods spend is below £1,000/year OR below 2% of your VAT-inclusive turnover, you are a Limited Cost Trader and must use the 16.5% flat rate. Services, software and staff costs do not count as goods for this test.
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