The VAT Flat Rate Scheme (FRS) is intended to simplify VAT for smaller businesses. Under the scheme, businesses with an annual turnover of less than £150,000 (excluding VAT) may apply to register. A business using the flat rate scheme will still charge VAT as normal on all its supplies (Output VAT) but will calculate the VAT amount due to HMRC by applying a trade-specific fixed percentage (always lower than the standard VAT percentage) to the standard VAT inclusive value of its total turnover (‘Flat Rate Turnover’). For example: You bill a client for £1,000, adding VAT at 20% to make your ‘Flat Rate Turnover’ £1,200. You are an IT consultant, so your trade-specific VAT flat rate is 14.5%. The VAT flat rate amount due will be 14.5% of £1,200, or £174. The £26 difference is additional profit for your company. FRS registered businesses may not reclaim the VAT on most expenses (Input VAT) as this is already taken into account in the calculation of the trade-specific flat rate percentages. Certain capital assets costing more than £2,000 (VAT inclusive) may still be claimed. Please refer to https://www.gov.uk/vat-flat-rate-scheme for more details.