Value Added Tax Act 1994 section 26B

Flat-rate scheme

Section 26B provides the legal basis for the VAT flat-rate scheme, which allows eligible small businesses to calculate their VAT liability as a fixed percentage of their total turnover rather than accounting for VAT on every individual transaction.

• Eligible taxable persons may elect to join the flat-rate scheme, under which their VAT liability is calculated as a specified percentage of their relevant turnover for each accounting period, rather than through standard input and output tax accounting.
• Relevant turnover means the VAT-inclusive value of taxable supplies plus the value of exempt supplies; the appropriate percentage is set by HMRC according to the category of business the person carries on.
• Participants in the flat-rate scheme generally lose the right to reclaim input tax, although regulations may designate certain business categories where the scheme instead produces a net credit for VAT.
• HMRC has broad powers to set the conditions for eligibility, to apply different percentages where a business changes category mid-period, to backdate entry to or exit from the scheme, and to publish notices determining how turnover timing and transitional adjustments are calculated.