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Operating the FRS - the basics

A business operating the flat rate scheme (FRS) must choose, from a prescribed list of sectors, the sector which most closely describes its type of business. A set ‘flat rate percentage’ is applicable to each sector.

In simple terms, this flat rate percentage is applied to the VAT inclusive turnover of the business to calculate VAT due to HMRC for a period. This means that the business is not required to keep detailed input tax records to work out exactly how much VAT can be reclaimed on costs. Instead, a notional amount of VAT recovery is built into the flat rate percentage.

For example, an accountant operating the FRS is likely to choose ‘accountancy or book-keeping’ as its type of business. The applicable