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 鈥榝lat rate percentage鈥� 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 鈥榓ccountancy or book-keeping鈥� as its type of business. The applicable