The purpose of the VAT Flat Rate scheme (FRS) is to simplify the way a business accounts for VAT and in so doing reduce their administration costs of complying with the VAT legislation. However, most businesses that sign up for the Flat Rate Scheme do so
in order to save money on their VAT bill and benefit from time saved using the scheme. FRS is especially useful for businesses that reclaim minimal input VAT on business expenses.
Businesses can only apply to use FRS if they expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover is the total of everything that a business sells during the year. It includes
standard, reduced rate or zero rate sales and other supplies. It excludes the actual VAT charged, VAT exempt sales and sales of any capital assets. Special rules apply to the sale of capital assets worth more than £2,000.