Can a solicitor use the Flat Rate Scheme if their turnover exceeds £150,000?

No. To join the Flat Rate Scheme, your expected VAT-exclusive taxable turnover must be £150,000 or less in the next 12 months. Once registered, you can stay on FRS until your total VAT-inclusive turnover exceeds £230,000. If you exceed that threshold, you must leave FRS and use standard VAT accounting. If you expect turnover to rise above £150,000, standard VAT accounting is usually the safer choice.

What is the flat rate percentage for a solicitor who is a limited cost trader?

16.5% of gross VAT-inclusive turnover, which is higher than the 14.5% sector rate for legal services. The limited cost trader rate is a penalty rate designed to remove the FRS advantage from businesses with minimal spend on goods. You are a limited cost trader if your VAT-inclusive expenditure on relevant goods is less than 2% of your VAT-inclusive turnover, or more than 2% but less than £1,000 a year, pro-rated for periods shorter than a year. Relevant goods are physical items such as stationery and office consumables. Services such as rent, utilities, software subscriptions and professional fees do not count, and capital expenditure, food and drink for the business or staff, and vehicles, vehicle parts and fuel are excluded, with a narrow exception for transport businesses.

Can a solicitor reclaim VAT on a computer under the Flat Rate Scheme?

Yes, but only if the computer costs more than £2,000 including VAT. Under FRS, you can reclaim input VAT on individual capital assets costing over £2,000. You must keep the original VAT invoice and claim the input VAT on your FRS return. For assets costing £2,000 or less, the VAT is covered by the flat rate and cannot be reclaimed separately.

Is the Flat Rate Scheme better for a conveyancing solicitor than standard VAT accounting?

Usually not. A conveyancing firm buys people, premises and software rather than goods, so it will almost always be a limited cost trader and pay 16.5% of gross turnover with no input VAT recovery. That is worse than standard accounting in nearly every case. FRS is only worth modelling for a firm that genuinely clears the relevant goods test, so stays on 14.5%, has very little input VAT and expects taxable turnover of £150,000 or less. Run both calculations on your own figures before deciding.

VAT & Compliance

Is the Flat Rate Scheme Right for Your Law Firm? A VAT Guide for UK Solicitors

18 May 2026Accounts for Lawyers Editorial Team9 min read

The Flat Rate Scheme (FRS) simplifies VAT, but for most law firms it costs more than standard VAT accounting. This guide explains how FRS works for solicitors, why the limited cost trader rule pushes most firms to a penalty rate of 16.5%, and the narrow cases where the scheme is still worth modelling.

Skip to enquiry form ↓

Key takeaways

The FRS flat rate for legal services is 14.5% of gross VAT-inclusive turnover, but a limited cost trader pays 16.5%, which is higher, not lower.
You are a limited cost trader if VAT-inclusive spend on relevant goods is under 2% of VAT-inclusive turnover, or over 2% but under £1,000 a year.
Most law firms spend on people and services rather than goods, so most law firms are limited cost traders and pay the 16.5% rate.
Under FRS you cannot reclaim input VAT except on individual capital assets costing more than £2,000 including VAT.
To join FRS your VAT-exclusive expected taxable turnover must be £150,000 or less, and you must leave once total VAT-inclusive turnover exceeds £230,000.

Introduction: VAT and the UK Law Firm

VAT is a significant cost for most UK law firms. Legal services, including conveyancing, litigation, and commercial advice, are standard-rated for VAT at 20%. If your firm is VAT-registered, you must charge VAT on your fees and account for it to HMRC. The standard method requires you to reclaim input VAT on your business purchases and pay over the net difference to HMRC.

The Flat Rate Scheme (FRS) is presented as a simpler alternative: instead of reclaiming input VAT on each purchase, you apply a fixed percentage to your VAT-inclusive turnover and pay that amount to HMRC. For law firms, however, the arithmetic usually goes the wrong way. The limited cost trader rule applies a flat rate of 16.5%, above the 14.5% sector rate for legal services, to any business whose spend on goods is minimal. A law firm's costs are overwhelmingly people and services, so most firms fall squarely inside that rule.

This guide explains the FRS rules, the limited cost trader test as HMRC actually applies it, and why standard VAT accounting is the better answer for the large majority of firms. It also sets out the narrow circumstances in which FRS is still worth modelling, and gives you the test to run on your own numbers.

How the Flat Rate Scheme Works for Solicitors

The Flat Rate Scheme is a simplified VAT accounting method. Instead of recording every input VAT amount and reclaiming it, you apply a single flat rate percentage to your gross turnover, meaning turnover including VAT. You pay that amount to HMRC and keep the rest, and you give up input VAT recovery on almost everything you buy.

Take a firm that bills a client £1,200 including VAT, so £1,000 of fees plus £200 of VAT. At the 14.5% sector rate the firm pays HMRC £174 (£1,200 x 14.5%) and retains £26 of the VAT collected. At the 16.5% limited cost trader rate it pays HMRC £198 (£1,200 x 16.5%) and retains just £2. Neither figure reflects the input VAT the firm has actually incurred, because under FRS that VAT is simply lost.

Flat Rate Percentage for Solicitors

HMRC publishes a list of trade sectors with corresponding flat rates. The category "Lawyer or legal services" carries a flat rate of 14.5%. This covers solicitors, barristers, and other legal professionals. If your firm provides a mix of services, you use the rate for your main business activity.

That 14.5% is not the rate most firms will pay. If your firm is a limited cost trader, the rate is 16.5% regardless of sector. This is not a discount and it is not optional: it is a penalty rate introduced to strip the FRS advantage out of businesses that buy few goods. A business in its first year of VAT registration takes a 1% discount off whichever rate applies, so 13.5% or 15.5% for that first year only.

What You Cannot Reclaim Under FRS

Under the Flat Rate Scheme, you cannot reclaim input VAT on most business purchases. This includes office supplies, rent, utilities, software, and professional fees. The flat rate is supposed to account for a typical level of input VAT recovery. There are two exceptions:

Capital assets over £2,000 including VAT: You can reclaim input VAT on individual capital assets costing more than £2,000 (including VAT). This includes computers, office furniture, and certain equipment.
VAT on goods bought for resale: If you buy goods specifically for resale (not services), you can reclaim the input VAT. This is rare for solicitors, as most firms sell services, not goods.

For a law firm, losing input VAT recovery on rent, practice management software, professional indemnity cover, counsel's fees and expert fees is the whole of the problem. It is rarely offset by the flat rate.

The Limited Cost Trader Test: What It Means for Your Law Firm

The limited cost trader test determines whether you pay 16.5% instead of the 14.5% sector rate. It applies to all businesses using FRS, including solicitors, and it is tested for every VAT period, not once a year.

You are a limited cost trader if your VAT-inclusive expenditure on relevant goods in the period is either less than 2% of your VAT-inclusive turnover, or more than 2% but less than £1,000 a year, pro-rated for a period shorter than a year.

"Relevant goods" means physical items bought for use in the business. Services do not count at all, and HMRC also excludes several categories of goods outright:

Capital expenditure
Food and drink for the business or its staff
Vehicles, vehicle parts and fuel, except for a business that carries out transport services and uses its own or a leased vehicle for that purpose

Apply that to a law firm. Salaries are outside the scope of VAT. Rent, utilities, insurance, software subscriptions, counsel's fees, expert fees, searches and marketing are services. IT hardware and office furniture are capital expenditure and therefore excluded. What is left that counts as relevant goods is stationery and consumables, which for almost any firm is far below 2% of gross turnover. The conclusion is the opposite of what firms often assume: most law firms are limited cost traders and pay 16.5%.

If you use 14.5% in a period in which you were in fact a limited cost trader, HMRC can assess the 2% difference plus interest and penalties. The test must be applied period by period, so a firm can move between the two rates.

FRS vs Standard VAT Accounting: A Comparison for Solicitors

To decide which method suits your law firm, compare the net VAT position under each approach on your own figures. Here are two worked examples.

Example 1: Sole practitioner, typical cost base

A sole practitioner solicitor has VAT-exclusive turnover of £100,000, so gross turnover of £120,000 after 20% VAT. The firm's VAT-bearing costs are £30,000 including VAT, made up of £20,000 of services (rent, utilities, insurance) and £10,000 of IT equipment and furniture.

Standard VAT accounting:

Output VAT charged to clients: £20,000 (£100,000 x 20%)
Input VAT recoverable: £5,000 (£30,000 x 1/6)
Net VAT payable to HMRC: £15,000

Limited cost trader test: the £20,000 of services does not count. The £10,000 of IT equipment and furniture is capital expenditure, so it does not count either. Relevant goods are effectively nil, which is below 2% of £120,000 (£2,400) and below £1,000. The firm is a limited cost trader and must use 16.5%.

Flat Rate Scheme at 16.5%:

Flat rate payment to HMRC: £19,800 (£120,000 x 16.5%)
Of the £20,000 of VAT collected from clients, the firm retains £200

Standard accounting costs £15,000. FRS costs £19,800. The Flat Rate Scheme is £4,800 a year worse for this firm. Even at the 14.5% sector rate the FRS figure would be £17,400, still £2,400 worse than standard accounting.

Example 2: The narrow case where FRS can win

For FRS to beat standard accounting, a firm has to clear the relevant goods test so it stays on 14.5%, and then have input VAT low enough that 14.5% of gross turnover is less than its output VAT minus its input VAT.

Take a firm with the same £100,000 VAT-exclusive turnover and £120,000 gross turnover, but a very light cost base: £4,000 including VAT of stationery and consumables that count as relevant goods, plus £5,000 including VAT of other VAT-bearing costs.

Relevant goods £4,000 exceeds 2% of £120,000 (£2,400) and exceeds £1,000, so the firm is not a limited cost trader and uses 14.5%
Standard accounting: output VAT £20,000 less input VAT of £1,500 (£9,000 x 1/6) equals £18,500
FRS at 14.5%: £17,400 (£120,000 x 14.5%)
FRS is £1,100 a year better

Note how contrived that cost base has to be. A firm spending £4,000 a year on stationery while spending only £5,000 on everything else that carries VAT, and paying either no rent or rent with no VAT on it, is not a typical practice. That is the point: the cases where FRS wins for a law firm are genuinely narrow.

The Test to Run on Your Own Numbers

Rather than taking a general recommendation, run this sequence on your own figures before you consider FRS:

Eligibility. Is your expected VAT-exclusive taxable turnover for the next 12 months £150,000 or less? If not, FRS is closed to you. Remember you must also leave once total VAT-inclusive turnover exceeds £230,000.
Relevant goods. Total your VAT-inclusive spend on goods for the period, excluding all services, capital expenditure, food and drink, and vehicles, parts and fuel. Compare it with 2% of your VAT-inclusive turnover and with £1,000 a year, pro-rated for shorter periods. For most firms this step ends the exercise at 16.5%.
Set the rate. 16.5% if you are a limited cost trader, otherwise 14.5%, less 1% if you are in your first year of VAT registration.
Calculate FRS. Multiply your gross, VAT-inclusive turnover by that rate. Nothing else is deductible except input VAT on individual capital assets over £2,000 including VAT.
Calculate standard accounting. Output VAT charged to clients, less input VAT on all your VAT-bearing costs.
Compare, then stress-test. If FRS wins, check whether it still wins if your goods spend drops below the 2% threshold in any period and moves you to 16.5%, and whether it still wins after your first-year discount ends.

If a firm fails step 1 or step 2, there is no decision left to make. Standard VAT accounting is the answer.

Get your VAT position checked by a specialist

Tell us about your firm and a specialist will review your situation and the most practical next step, with no obligation.

When Standard VAT Accounting Is Better

Standard VAT accounting is better for the great majority of law firms, and clearly so for firms that:

Are limited cost traders, which covers most practices, and would therefore pay 16.5% of gross turnover
Have high rent or property costs, where commercial property rent is standard-rated for VAT
Spend heavily on practice management software, IT and other subscriptions
Instruct counsel, experts, agents or subcontractors who charge VAT
Incur significant professional fees
Have a high proportion of input VAT relative to output VAT

Standard accounting also carries no rate cliff edge, no period-by-period goods test, and no risk of a backdated assessment for using the wrong percentage.

Practical Steps If You Still Want to Join FRS

If you have run the comparison above and FRS still wins on your figures, the mechanics are as follows:

Check eligibility: Your expected VAT-exclusive taxable turnover must be £150,000 or less to join. Once on the scheme, you can stay until total VAT-inclusive turnover exceeds £230,000.
Apply to HMRC: You can apply online through your HMRC business tax account.
Determine your flat rate: 14.5% for legal services, or 16.5% if you are a limited cost trader, less the 1% first-year discount if it applies.
Adjust your accounting: From the start date, calculate VAT on a gross turnover basis. You cannot reclaim input VAT on most purchases from that point.
Re-test every period: The limited cost trader test is applied for each VAT period. If your goods spend falls below the threshold, you must use 16.5% for that period.

You can leave FRS at any time. If you leave, you must use standard VAT accounting from the start of your next VAT period.

Common Pitfalls for Solicitors on FRS

Assuming the limited cost trader rate is a discount: It is 16.5%, above the 14.5% sector rate. Firms that read it as a reduction join the scheme on a false premise.
Counting services or capital spend as goods: Rent, software, insurance, counsel's fees, IT hardware and office furniture all fail to count as relevant goods. Including them produces a false pass on the 2% test.
Testing annually instead of per period: The test applies to each VAT period. A quiet quarter can move you to 16.5% even if the year as a whole looks different.
Forgetting the capital asset rule: You can reclaim input VAT on individual capital assets over £2,000 including VAT. Firms on FRS routinely miss this.
Ignoring the first-year discount ending: A scheme that worked at 13.5% or 15.5% may not work once the 1% discount falls away.

We recommend you work with a solicitor accountant who understands VAT rules for law firms. They can model both methods on your actual figures and keep the period-by-period test under review.

Conclusion: For Most Law Firms, FRS Costs More

The Flat Rate Scheme is simpler, but simplicity is not the same as cheaper. Because a law firm buys people, premises and services rather than goods, most firms are limited cost traders and pay 16.5% of gross VAT-inclusive turnover with no input VAT recovery. Against a 20% output VAT charge and real input VAT on rent, software, insurance and counsel, that is usually a worse result than standard VAT accounting, and often by thousands of pounds a year.

The scheme is still worth modelling in a narrow set of cases: a firm that genuinely clears the relevant goods test and stays on 14.5%, with very low input VAT, simple affairs, and expected taxable turnover of £150,000 or less. If that is not your firm, the decision is already made.

Run the six-step test above on your own numbers before you do anything else. For more guidance on VAT and compliance for law firms, see our solicitor guides or contact our team for a free firm health check.

Frequently asked questions

Can a solicitor use the Flat Rate Scheme if their turnover exceeds £150,000?: No. To join the Flat Rate Scheme, your expected VAT-exclusive taxable turnover must be £150,000 or less in the next 12 months. Once registered, you can stay on FRS until your total VAT-inclusive turnover exceeds £230,000. If you exceed that threshold, you must leave FRS and use standard VAT accounting. If you expect turnover to rise above £150,000, standard VAT accounting is usually the safer choice.
What is the flat rate percentage for a solicitor who is a limited cost trader?: 16.5% of gross VAT-inclusive turnover, which is higher than the 14.5% sector rate for legal services. The limited cost trader rate is a penalty rate designed to remove the FRS advantage from businesses with minimal spend on goods. You are a limited cost trader if your VAT-inclusive expenditure on relevant goods is less than 2% of your VAT-inclusive turnover, or more than 2% but less than £1,000 a year, pro-rated for periods shorter than a year. Relevant goods are physical items such as stationery and office consumables. Services such as rent, utilities, software subscriptions and professional fees do not count, and capital expenditure, food and drink for the business or staff, and vehicles, vehicle parts and fuel are excluded, with a narrow exception for transport businesses.
Can a solicitor reclaim VAT on a computer under the Flat Rate Scheme?: Yes, but only if the computer costs more than £2,000 including VAT. Under FRS, you can reclaim input VAT on individual capital assets costing over £2,000. You must keep the original VAT invoice and claim the input VAT on your FRS return. For assets costing £2,000 or less, the VAT is covered by the flat rate and cannot be reclaimed separately.
Is the Flat Rate Scheme better for a conveyancing solicitor than standard VAT accounting?: Usually not. A conveyancing firm buys people, premises and software rather than goods, so it will almost always be a limited cost trader and pay 16.5% of gross turnover with no input VAT recovery. That is worse than standard accounting in nearly every case. FRS is only worth modelling for a firm that genuinely clears the relevant goods test, so stays on 14.5%, has very little input VAT and expects taxable turnover of £150,000 or less. Run both calculations on your own figures before deciding.

Unsure which costs are genuine disbursements?

A payment is outside the scope of VAT only if all eight conditions in VAT Notice 700 section 25.1.1 are met, and since Brabners and Revenue and Customs Brief 6 (2020) a search fee you interpret in your own advice is part of your taxable supply. Ask a specialist to test your recharges.

Article
How Does VAT Apply to Conveyancing Fees for UK Solicitors in 2026/27?
Conveyancing legal services are standard-rated for VAT at 20%. This guide works through the VAT treatment of a conveyancing matter end to end in 2026/27: your firm's fee, property searches (and why most are not disbursements after Brabners), HM Land Registry registration fees, the property transaction tax paid for the client, and CHAPS recharges.
Article
CFA Success Fee Accounting and Tax: A UK Law Firm Guide
A conditional fee agreement is a no-win-no-fee arrangement under CLSA 1990 s.58, with a success fee capped at 100 per cent of base costs and, in personal injury, a 25 per cent cap on the success fee taken from damages. The legal framework is the easy half. The hard half is accounting and tax: under FRS 102 the firm recognises revenue only when success is probable and measurable, carries CFA WIP conservatively, and the VAT tax point falls at the win, not as time is recorded.
Article
Counsel's Fees and VAT: The Default Rule for UK Law Firms
Counsel's fee is, in the normal case, a supply to your firm, not a client disbursement. This guide sets out the default treatment (recover the input VAT, charge output VAT on your bill), the narrow disbursement exception, the long-standing HMRC concession, and why you cannot both treat the fee as a disbursement and reclaim the VAT.