Instead of reclaiming VAT on purchases, you pay a fixed percentage of your VAT-inclusive turnover. It can simplify admin, and sometimes saves money.
When it is worth it
The scheme tends to help businesses with few VAT-bearing purchases. Limited cost businesses pay a higher 16.5%.
Worked example
See it with real numbers
With £100,000 turnover, £4,000 VAT on purchases and a 14.5% flat rate, the scheme costs £17,400 against £16,000 under standard VAT, so standard accounting is £1,400 cheaper.