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Smaller VAT-registered businesses can save a significant amount of work by joining the flat rate scheme. The scheme can be used by businesses that have taxable turnover of less than £150,000. Under the scheme VAT is calculated as a percentage of VAT-inclusive turnover. The percentage depends on the nature of the business (see www.gov.uk/vat-flat-rate-scheme/vat-flat-rates).

A discount of 1% on the flat rate percentage is given to businesses in their first year of VAT registration, saving them money.

Once a business has joined the scheme, it can remain in it even if turnover exceeds £150,000 in a year as long as total income, including VAT, is not more than £230,000 in a year.

Using the flat rate scheme removes the need to record separately the VAT charged on every sale and purchase, reducing the time spent doing the books. However, VAT must still be charged on sales within the scope of VAT and a VAT invoice issued on which VAT is shown separately.