ratesheet

Contractor VAT calculator

Compare what you'd pay HMRC under the Flat Rate Scheme with standard VAT accounting, based on your invoices and the VAT on your costs.

Your numbers

Most contractors with few goods costs are limited cost traders.

VAT you'd reclaim under standard accounting.

Standard VAT accounting saves you £480 a year.

  • VAT you charge£24,000£2,000 a month
  • Flat Rate owed£23,76016.5% of £144,000
  • Standard owedKeeps more£23,280After reclaiming £720
Flat Rate Scheme
  • VAT you keep 1%
  • Paid to HMRC 99%
Standard VAT
  • VAT you keep 3%
  • Paid to HMRC 97%
Per year
Invoices before VAT£120,000
VAT charged at 20%£24,000
VAT-inclusive turnover£144,000
Flat Rate owed (16.5% of turnover)£23,760
Standard owed (VAT charged − VAT on costs)£23,280
Standard saves you£480

Excludes the 1% first-year discount on the Flat Rate Scheme and capital purchases over £2,000.

2026/27 rates for England, Wales and Northern Ireland. Rates last checked 8 Nov 2026 against GOV.UK: VAT Flat Rate Scheme, VAT rates.

How it’s worked out

Under standard VAT accounting you charge 20% VAT on your invoices, reclaim the VAT on your business costs, and pay HMRC the difference.

Under the Flat Rate Scheme you still charge 20% VAT, but you pay HMRC a fixed percentage of your VAT-inclusive turnover and can't reclaim VAT on most costs. The percentage depends on your business type: 14.5% for computer and IT consultancy and 14% for management consultancy.

There's a catch for most contractors: if you spend less than 2% of your turnover (or under £1,000 a year) on goods, you're a limited cost trader and must use 16.5%. At 16.5% of a VAT-inclusive figure, you pay HMRC 19.8% of your net invoices, nearly all the VAT you charged. With even a small amount of VAT on costs, standard accounting usually works out cheaper.

This calculator compares the two on a yearly basis and tells you which leaves you more. It doesn't affect your income or corporation tax, only how much VAT you pass on to HMRC.

Questions

Is the Flat Rate Scheme worth it for contractors?

Rarely, if you're a limited cost trader at 16.5%. If you qualify for a lower category rate and have few costs, it can save money and admin.

What is a limited cost trader?

A business whose spending on goods is less than 2% of VAT-inclusive turnover, or less than £1,000 a year. Services, travel and food don't count as goods.

When do I have to register for VAT?

When your VAT-taxable turnover goes over £90,000 in any rolling 12 months. You can register voluntarily below that.

These figures are estimates for guidance only and aren’t financial or tax advice. Speak to an accountant before making decisions.