Businesses that use the flat rate scheme pay VAT as a fixed percentage of their VAT inclusive turnover. The VAT agricultural flat rate scheme is a variant of the flat rate scheme specifically designed for farmers and other activities relating to agricultural production (such as horticulture).
Farmers cannot join this scheme if the value of their non-farming activities is above the VAT registration threshold (currently £85,000). The amount of VAT paid on business expenses becomes irrelevant to the VAT returns.
The scheme was introduced to help ease the administrative burden of farmers who found that the requirement to maintain full VAT records had become disproportionally burdensome, usually by reason of the relatively small size of their businesses.
It is a condition of joining the scheme that farmers who are registered for VAT must have their registration cancelled. However, although the farmers will no longer be able to reclaim input tax they can charge a flat rate addition (FRA) of 4% even on sales that would otherwise be zero-rated for VAT.
The FRA is not VAT and the farmer is allowed to keep it. The addition acts as compensation for the loss of input tax the farmer would have been able to reclaim if registered for VAT.
Source: Informanagament