Many small businesses use the flat rate scheme. HMRC describe this scheme as being designed to simplify your records of sales and purchases yet their guidance on the scheme runs to over 13,500 words! The introduction of a 16.5% flat rate for “low cost traders” has added to the complexity. This has caused many businesses to abandon the scheme in favour of standard VAT accounting and some, who had registered voluntarily, have de-registered for VAT. The 16.5% rate has hit service businesses in particular as their main costs tend to be labour and they don’t buy “goods” (as defined by HMRC).