Do I need to register for VAT, and what is the VAT flat rate scheme?
Direct Answer
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period (threshold from April 2024). You can also register voluntarily below this threshold. The Flat Rate Scheme (FRS) lets eligible businesses charge VAT at the standard 20% but pay HMRC at a lower sector-specific rate (typically 14.5% for most IT/tech freelancers), keeping the difference as profit. On £100,000 turnover, FRS can generate an extra £5,000–£8,000 annually.
VAT thresholds 2025/26
| Threshold | Amount |
|---|---|
| Compulsory registration threshold | £90,000 rolling 12 months |
| Deregistration threshold | £88,000 |
| Time to register after exceeding threshold | Within 30 days |
| Standard VAT rate | 20% |
| Reduced rate | 5% (domestic fuel, certain goods) |
| Zero rate | 0% (most food, children's clothing, books) |
Should you register voluntarily before £90,000?
Reclaim VAT on business purchases (equipment, software)
Appear more credible to VAT-registered business clients
Eligible for the Flat Rate Scheme immediately
Quarterly returns add admin burden
If clients are consumers, you effectively raise your prices by 20%
Penalty regime for late filing and payment
Most B2B freelancers benefit from early voluntary registration, especially if they spend significantly on equipment or software.
How the Flat Rate Scheme works
Charge clients 20% VAT. Pay HMRC exactly what you collect, minus what you reclaim on purchases. More admin but better if you buy lots of goods.
Still charge clients 20% VAT. Pay HMRC a lower flat rate (e.g. 14.5%). Keep the 5.5% difference. Cannot reclaim VAT on purchases (except capital equipment over £2,000 inc VAT).
FRS rates for common freelancer sectors
| Business type | FRS rate |
|---|---|
| IT and computer services | 14.5% |
| Management consultancy | 14.0% |
| Accounting and bookkeeping | 14.5% |
| Marketing and PR | 11.0% |
| Engineering and technical consultancy | 14.5% |
| Design and creative | 11.0% |
| Legal services | 14.5% |
The "limited cost trader" rule — important
This catches most pure service freelancers
If your VAT-inclusive costs on goods are less than 2% of your VAT-inclusive turnover, or less than £1,000 per year, HMRC classifies you as a "limited cost trader" and your FRS rate is 16.5% — making the FRS significantly less attractive.
Most pure service freelancers (no materials or stock) fall into this category. Always model both options with your accountant before committing to FRS.
VAT schemes compared
| Scheme | Best for | Key feature |
|---|---|---|
| Standard accounting | High-purchase businesses | Reclaim VAT on all purchases |
| Flat Rate Scheme | Low-purchase service businesses | Keep the margin, less admin |
| Cash accounting | Businesses with slow-paying clients | Only pay VAT when client pays you |
| Annual accounting | Simple cash flow management | One payment on account, one return |
Making Tax Digital for VAT
All VAT-registered businesses must use MTD-compatible software. FreeAgent, Xero, and QuickBooks all comply. Quarterly returns are submitted digitally — there is no paper option.
Choosing the right VAT scheme can be worth thousands per year.
Autobooks handles VAT returns, FRS calculations and MTD filing as standard — from £89+VAT/month.