Most consultants pick a VAT scheme once and never look again. The right one changes as your costs change.
Nasir Rasheed, Director
Flat rate VAT scheme advice: flat rate or standard rate, decided on your actual costs
Flat rate VAT scheme advice for limited company directors whose costs are low and whose VAT return gets filed each quarter without anyone asking whether the scheme underneath it is still right.
Most service businesses reclaim VAT on almost nothing: software, a laptop, a few subscriptions. That makes the scheme choice worth real money every quarter, and the limited cost trader rule decides which way it goes. Nobody works that out from a filed return.
Nexus Tax and Accounting Solutions is a Milton Keynes accountancy practice run by Nasir Rasheed MAAT AATQB. It advises established limited companies on the flat rate VAT scheme against the standard scheme, including the limited cost trader rule, inside one monthly fee that also covers accounts, corporation tax, payroll and the director’s self assessment.
Accredited and certified
- Nasir Rasheed MAAT AATQB
- Established 2024
- Three new clients a month
- Milton Keynes · UK-wide remote
What the scheme review gives you
You pay VAT on the scheme that suits your costs
The comparison runs on your own figures, not on what your sector usually does.
You know whether the limited cost trader rule catches you
If your spend on goods is too small, you hear that before you join a scheme that costs more.
The scheme gets rechecked as the business changes
Hiring, buying equipment or taking on subcontractors can move the answer, so it is looked at again.
Three things directors tell me about their VAT scheme
Each one is a decision that was made once and then left alone.
- VAT
“We went flat rate when we registered and nobody has looked at it since, even though our costs have changed a lot.”
The scheme that suited a one-person consultancy stops suiting a business buying equipment and subcontract labour.
- Tax bill
“I reclaim VAT on a laptop and two software subscriptions. That is it. Box four is basically empty every quarter.”
Low input VAT is exactly when the scheme choice is worth real money, and nobody had run the comparison.
- Switch
“My accountant files the return on time and has never once told me whether the scheme we are on is the right one.”
Filing is not reviewing. The return can be correct while the scheme underneath it is the expensive one.
- Day 90
What changes once someone checks the scheme against your costs
You see both schemes priced on your last four quarters, in pounds. You get a straight answer on whether HMRC would treat you as a limited cost trader. And the scheme gets revisited when your costs change, instead of sitting untouched for another six years.
Quick check · no email
If your accountant cannot tell you whether the flat rate scheme beats standard, what your tax bill will be before it lands, and get back to you this week, you have the wrong accountant
Three questions about your current accountant, answered honestly.
Question 1 of 3
Could they tell you this week whether flat rate or standard rate is cheaper for your company?
Could they tell you your corporation tax bill and dividend headroom before the year end?
Could they reply themselves this week, rather than passing you to another account manager?
Those three answers are the whole job, and none of them is being done for you. The set-up review is where that gets fixed, starting with the VAT scheme.
You are in a reasonable position, but one area is running on an old decision. The consultant in the entry below was in exactly that spot and his VAT bill fell every quarter.
You are well served and you should stay put. Read the guides if you want a second view on the scheme comparison before your next quarter.
Flat rate against standard rate when you reclaim very little VAT
Same turnover, two different VAT bills. Here is how the two schemes behave for a service business.
Standard rate scheme
You charge VAT at the normal rate and reclaim the VAT on what the company buys.
It rewards businesses with real input VAT: materials, stock, equipment, subcontractors.
Every purchase invoice has to be captured, because each one is money back.
For a consultant with a laptop and some software, the reclaim box stays close to empty.
Flat rate scheme
You pay HMRC a fixed percentage of gross turnover and stop reclaiming most purchase VAT.
It suits low-cost service businesses where there was very little to reclaim anyway.
Capital equipment above HMRC’s limit can still be reclaimed, which catches people out both ways.
If HMRC treats you as a limited cost trader, the percentage rises and the benefit usually disappears.
Eight things worth checking about your VAT set-up
Answer these about your own company. Any no is worth a conversation.
- 01
Do you know which VAT scheme your company is on today?
Plenty of directors do not, because it was set at registration and never mentioned again.
- 02
Has anyone compared flat rate and standard rate on your actual figures?
The comparison needs your last four returns and an afternoon.
- 03
Is your reclaim small every quarter?
Low reclaims are the signal that flat rate is worth pricing up properly.
- 04
Do you buy goods, or mostly services and software?
Goods spend decides whether the limited cost trader rule catches you.
- 05
Have your costs changed since you registered for VAT?
Staff, equipment and subcontractors can move the answer the other way.
- 06
Do you know the flat rate percentage for your trade?
The sector percentage matters as much as turnover when you run the sums.
- 07
Are you close to a turnover limit for joining or staying on flat rate?
Those limits apply on the way in and on the way out, and both need watching.
- 08
Does your accountant raise this without being asked?
If the scheme only comes up when you raise it, it is not being reviewed.
What sits around the VAT scheme decision
The scheme is one part of a set-up that gets checked as a whole.
VAT returns and scheme review
Returns filed on schedule, with the scheme chosen for your actual costs rather than by default.
Corporation tax forecast a month ahead
You get the bill and your dividend headroom before the year end, not the week it is due.
Salary and dividend planning
The split gets reviewed against the company’s profit, instead of running on the number set at incorporation.
Entry 01
What one scheme change did for a procurement consultant
One entry from the practice, anonymised by type.
Clients described by type. Names withheld.
What clients say
How the scheme decision gets made, then rechecked
Four points in the first three months where the VAT scheme is actually looked at.
You see both schemes priced before you commit
The set-up review puts flat rate and standard rate side by side on your last four quarters.
The scheme is changed or deliberately left alone
If a move is right, I handle the application and the timing. If it is not, I tell you why.
The books match the scheme you are on
Bookkeeping is set so the return is right first time and nothing reclaimable is missed.
Your tax position arrives before the bill
Corporation tax and dividend headroom are forecast a month ahead, so the money is there.
When Nexus is not the right firm
Start-ups in year one or two, where there is not yet enough trading to review.
Sole traders under £150,000 of turnover, where incorporation is not the obvious move.
Property-only landlords and cash businesses.
Owners buying on price alone, who want filing and no conversation.
If you are an established limited company with low input VAT, the set-up review is the right place to start.
Questions directors ask about the flat rate scheme
What does the monthly fee include?
One monthly fee covers year-end accounts, corporation tax, the confirmation statement, VAT returns, bookkeeping, payroll and your own self assessment. Proactive advice sits inside it on a fair-use basis: VAT scheme review, salary and dividend planning, and a corporation tax forecast a month before the bill lands. Capital gains tax returns are charged separately.
We already have an accountant, so is flat rate VAT scheme advice worth a second look?
It is if nobody has priced both schemes on your own figures. A return can be filed correctly for years while the scheme underneath it quietly costs more than the alternative. The review either confirms you are on the right one or shows you the difference in pounds. Either answer is useful.
Do we have to move to different software?
No. The software review is part of the set-up review, and if what you have works, it stays. Xero is common among clients here and I am comfortable in it, but the point is that the bookkeeping routine keeps your numbers current, not that everyone uses the same package.
What happens with our current accountant if we move?
You do not chase them yourself. I write for professional clearance, collect the records, and deal with the handover. Then the set-up review looks at structure, VAT scheme, salary and dividends and software, and you get a first-year timetable so you know what is due and when. There is no separate charge for that.
Is the flat rate VAT scheme better than the standard scheme for a consultancy?
Often, because a consultancy reclaims VAT on very little: software, a laptop, a few subscriptions. But it depends on your sector percentage, your turnover and your goods spend. A procurement consultant here moved to flat rate after his review and his VAT bill fell every quarter with no change to turnover. It has to be worked out, not assumed.
What is the limited cost trader rule?
It is HMRC’s test for businesses that spend very little on goods. If your goods spend is below the level HMRC sets, measured against your turnover and with a minimum amount each year, you have to use the highest flat rate percentage. That usually removes the benefit, so the test gets checked before any move and again each quarter.
Three ways to take the next step
Take the two-minute quiz
It tells you whether Nexus is a fit, and if it is, the set-up review prices both VAT schemes on your own quarters.
Check if Nexus fits your company 02 · A question firstWant a straight answer on one question first?
Send Nasir the question and you get a reply from the person who would do the work.
Ask Nasir about your scheme 03 · Still decidingStill deciding
The guides walk through how the flat rate and standard schemes compare so you can sense-check your own position.
Read the guides →