Estimated reading time: 3 minutes
Introduction
Once your business is registered for VAT, you’ll normally need to choose how you account for and report VAT to HMRC. HMRC offers several VAT schemes that may simplify administration or improve cash flow for eligible businesses.
Key Points at a Glance
- Most VAT-registered businesses use the Standard VAT Accounting Scheme.
- Alternative schemes are available for eligible businesses.
- The right scheme depends on turnover, business activities and cash flow.
- Some schemes have turnover limits and eligibility conditions.
- Choosing the wrong scheme can affect administration and cash flow.
Standard VAT Accounting
The Standard VAT Accounting Scheme is the default method. You account for VAT by comparing VAT charged on sales with VAT paid on eligible business purchases, usually based on the invoice date.
VAT Flat Rate Scheme
Eligible businesses with VAT taxable turnover of £150,000 or less (excluding VAT) may be able to use the Flat Rate Scheme.
- Pay a fixed percentage of VAT-inclusive turnover.
- Percentage depends on business sector.
- VAT generally cannot be reclaimed on most purchases.
VAT Cash Accounting Scheme
Under the Cash Accounting Scheme, VAT is accounted for when payments are received from customers and made to suppliers. This can improve cash flow for businesses with slower-paying customers.
VAT Annual Accounting Scheme
Eligible businesses can submit one VAT Return each year while making advance payments throughout the year.
Retail and Margin Schemes
HMRC also provides specialist schemes for certain businesses.
- VAT Retail Schemes for qualifying retailers.
- VAT Margin Schemes for qualifying second-hand goods, works of art, antiques and collectors’ items.
Which Scheme is Right for Your Business?
The most suitable VAT scheme depends on your turnover, business type, customer payment patterns, VAT recovery and preferred level of administration.
How We Can Help
We can help you choose the most appropriate VAT scheme, register for it, review your current arrangements, prepare VAT Returns and ensure compliance with Making Tax Digital requirements.
Further Reading (HMRC)
- How VAT works: VAT schemes – https://www.gov.uk/how-vat-works/vat-schemes
- VAT Flat Rate Scheme – https://www.gov.uk/vat-flat-rate-scheme
- VAT Annual Accounting Scheme – https://www.gov.uk/vat-annual-accounting-scheme
- VAT Cash Accounting Scheme – https://www.gov.uk/vat-cash-accounting-scheme
- VAT Retail Schemes – https://www.gov.uk/vat-retail-schemes
- VAT Margin Schemes – https://www.gov.uk/guidance/using-the-vat-margin-scheme-for-second-hand-goods-works-of-art-antiques-and-collectors-items
Disclaimer
This article is intended as general guidance only and is based on HMRC and GOV.UK guidance available at the time of writing. Tax legislation and HMRC guidance may change, and individual circumstances differ. Please contact us if you require advice specific to your situation.
Last reviewed: July 2026
