The Flat Rate VAT scheme is a government scheme to help small businesses simplify VAT returns. The scheme allows you to charge your customers VAT at the full rate, but only pay HMRC a lower rate.
For courier drivers under the Flat Rate VAT Scheme, you can charge customers VAT at the full 20%, but in the first twelve months only pay HMRC at 9% and 10% thereafter.
The difference or balance between the amount charged to customers and the smaller amount paid to HMRC is designed to cover the VAT that your business pays on expenses that you are not claiming.
There are 2 key criteria to be eligible for FRV:
(i) you own or lease a vehicle, and
(ii) you have sufficient eligible costs each quarter
For both these reasons your SLA and vehicle lease agreement are important and must be signed and in place.
The lease shows that you do lease a vehicle and the daily fuel charge shows you meet the cost requirement.