Would the VAT flat rate scheme work for you? Business confidence falls, and the LPC gather evidence of the impact of NMW
Today’s blog post talks about whether the VAT Flat Rate Scheme may prove beneficial for small businesses, bad news as business confidence is at a record low, and the LPC is set to carry out investigations into the impact of the National Minimum Wage on employers and employees.
VAT Flat Rate Scheme: Could It Work for You?
If you are a small VAT-registered business, how you calculate your VAT could make a real difference to your cash flow and the time you spend keeping records.
For some businesses, the standard method for calculating VAT is the best choice, but for others, their circumstances mean the VAT Flat Rate Scheme may be worth considering.
Here we review some of the factors involved in determining whether the VAT Flat Rate Scheme could work for you.
Comparing methods
Under the standard method you charge VAT on your sales and reclaim VAT on your purchases. You then pay the difference to HM Revenue & Customs (HMRC).
The Flat Rate Scheme uses a different calculation. You still charge your customers the usual VAT rate. However, instead of reclaiming VAT on most purchases, you pay a fixed percentage of your VAT-inclusive turnover to HMRC. The percentage amount depends on the industry your business belongs to.
Eligibility rules apply. Businesses may be able to join the VAT Flat Rate Scheme if their VAT turnover is £150,000 or less (excluding VAT).
When the Flat Rate Scheme might help
The Scheme can work well for businesses when VAT-able expenses are low. For example, a consultant or designer who mainly sells their time may find the flat rate percentage more favourable than reclaiming VAT under the standard method.
Some business owners also prefer the simplicity. Because you don’t claim VAT on purchases, other than certain capital assets over £2,000, the calculations can be quicker.
When the standard method may be better
If your business regularly buys goods or services with VAT on them, reclaiming VAT through the standard method is often more cost-effective. The same can be true if you regularly make larger purchases.
Choosing a method
The best way to be sure which method is right for you is to run the numbers and compare.
If you would like advice on whether the Flat Rate Scheme is right for you, give us a call. We are happy to help!
Business Confidence Falls Again as Tax Concerns Reach Five‑Year High
The latest Business Confidence Monitor, an Institute of Chartered Accountants in England and Wales survey, shows confidence continuing to fall. Confidence has now fallen for six consecutive quarters and is now at its lowest since the final three months of 2022.
The survey, which gathered views from 1,000 business leaders, shows growing concern over tax complexity and the wider outlook for business activity.
Tax pressures rising
A record 64% of businesses said the tax burden was becoming a greater challenge, up from 60% in the previous quarter. According to the report, this reflected uncertainty over what tax changes might be included in the Autumn Budget 2025, combined with the effects of previous tax rises feeding through.
Regulation was the second biggest reported challenge, with 51% of businesses saying it was holding back performance. Many cited the Employment Rights Bill as a contributing factor.
Differences between sectors
Some sectors remain noticeably more pessimistic. Property, retail and wholesale continue to show the weakest sentiment, with construction close behind.
Exporters, however, were more upbeat than non‑exporters. IT and communications was the only sector to report a positive score, at +0.3.
Employment and pay trends
Employment growth slowed to 0.8% in the quarter, the lowest figure since mid‑2021. Manufacturing and engineering, retail and wholesale and transport reduced their headcount as 2025 ended. However, it seems that transport and storage are the only sectors expecting to cut jobs further during 2026.
Salary growth also eased to 2.9%. This is still above pre‑pandemic levels but lower than the rises seen in recent years. The expectation is for pay to increase at a similar pace over the next 12 months.
Sales expectations improving
Despite the fall in overall confidence, there are some bright spots. Expectations for domestic sales improved for the first time since 2024, even though actual growth slowed slightly to 2.9%. Export sales growth rose to 2.5% and is also expected to continue improving in 2026.
Capital investment grew modestly to 2%, although businesses expect to slow their spending plans over the coming year.
What this means for your business
The report paints a picture of businesses managing rising costs while holding back on hiring and major investments. At the same time, the slight improvement in sales expectations suggests many firms are cautiously optimistic about trading conditions in 2026.
If you would like to review how these economic trends might affect your business plans, particularly around staffing, investment or cash flow, please feel free to get in touch. We would be happy to help you!
Low Pay Commission Seeks Views on the National Minimum Wage
The Low Pay Commission (LPC) has announced a series of visits across the UK in 2026 to gather first‑hand evidence on how the National Minimum Wage is affecting employers and workers. These local meetings will help shape its recommendations to the government later in the year.
Where the LPC will be visiting
- Bradford – 18/19 March 2026.
- Aberdeen – 15/16 April 2026.
- Blackpool – 13/14 May 2026.
- Peterborough – 10/11 June 2026.
- Wrexham – 01/02 July 2026.
- Derry – 29/30 July 2026.
The LPC will be looking to hear about:
- The economy and labour market in the area.
- The outlook for pay and employment in businesses.
- How employers and workers are affected by the rising minimum wage.
- The views of attendees on the future of the minimum wage.