Usually not. The two construction sector rates are 14.5% for labour-only services where materials are under 10% of turnover, and 9.5% for general building services where materials are 10% or more, with the rate set by the materials proportion rather than by the trade. But a labour-only subcontractor whose sales all fall under the VAT domestic reverse charge has almost no VAT-inclusive turnover to apply a flat rate to, and low relevant goods spend also risks the 16.5% limited cost business rate. The scheme remains genuinely useful for a trade selling direct to domestic customers, outside CIS and outside the reverse charge.
The Flat Rate Scheme works by letting you keep the difference between the VAT you charge and a flat percentage you pay over. Under the reverse charge you do not charge VAT on your subcontract sales at all — the customer accounts for it. There is no margin to keep on those supplies, and reverse charge sales are excluded from the flat rate turnover.
So for a subcontractor whose work is mostly inside the reverse charge, the scheme has very little left to do.
It stops you recovering input VAT in the ordinary way. A subcontractor with no output VAT on sales but real input VAT on materials, fuel, plant hire and overheads is naturally in a repayment position — the returns should be producing refunds. On the Flat Rate Scheme that recovery is restricted, so the scheme can turn a repayment position into a worse one.
The limited cost trader rules also need checking: a labour-only business with low goods spend will often fall into the higher percentage, which removes most of what is left of the benefit.
If you are in a repayment position, switching to monthly VAT returns turns a quarterly refund into a monthly one. That is usually worth more to a labour-only subcontractor than any flat rate percentage.
This question is part of VAT rates in construction, which covers the whole area.
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