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Standard vs Flat Rate VAT Schemes
Standard vs Flat Rate VAT Schemes

Choosing between the Standard or Flat rate schemes, and the impact on reports

Updated over a week ago

If you earn over £85,000, you must register for VAT. Coconut Supports both the Standard and Flat Rate VAT Schemes. Depending on which you select, the app will have different behaviour.

What are the VAT Schemes?

Standard Rate VAT Scheme

On this scheme, you charge VAT on invoices (usually 20%) and pay this over to HMRC. You can reduce the amount you pay by claiming the VAT you pay on allowable expenses.

You have to keep track of the VAT you charge on your income, and also the VAT you pay on expenses. Learn more on

Flat rate VAT scheme

If you earn under £150,000, you can opt to use the flat rate scheme instead of the Standard Rate scheme. It’s intended to be a simpler way to manage your VAT.

You still charge the relevant VAT rate on your sales (usually 20%). Then each VAT period, you add up your total sales including VAT, and multiply it by the relevant flat rate for your industry. You don't have to keep track of VAT on expenses. Learn more on

How it works in Coconut

The following table shows how each scheme works in Coconut:

Standard Rate

Flat Rate

VAT on Income

20% on Income

20% on Income

VAT on Expenses

0%, 5% or 20% on Expenses

No VAT recorded

VAT Payment due

Pay HMRC the 20% on income charged to clients, minus any VAT paid on expenses

Pay to HMRC your total income, inclusive of VAT, multiplied by the relevant 'flat rate %'.

Tax Reports

Your tax figures will be presented excluding VAT.

Your tax figures will be presented including VAT. You should also record the VAT payment you make as a deduction from your income (see below).

Recording VAT payments

VAT payments made to/from HMRC should be excluded from your profitable tax, and should be recorded as 'VAT Payments'

The payment you make to HMRC for your VAT should be deducted from your total taxable income. As such, you should categorise this payment as 'Income'

Completing a VAT return

Report vat on sales, vat on purchases, net sales and net purchases to HMRC.

Report vat on sales, gross sales and gross purchases to HMRC.

Think of it this way: On the Standard Rate scheme, the VAT should be ignored when working out your profits, as the money just through you and onto HMRC.

On the Flat Rate scheme, you can make a 'profit' on the difference between the VAT you add on to what you charge and the VAT you claim back from HMRC - this 'profit' will be taxable as part of your overall profit. As such, you need to include both the VAT you charge and the VAT repayment you receive in the figures your report for tax.

That's why the Flat Rate figures are presented inclusive of VAT, and why you should deduct the Flat Rate VAT repayment you receive from your total income too.

Still Unsure?

VAT can be a difficult area to get right. If you’re unsure, speak to your accountant or tax advisor.

Read more:

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