The standard way of accounting for VAT is invoice-based and quarterly: you owe VAT when you invoice, reclaim it when you are invoiced, and file four times a year. Every scheme changes exactly one of those three things, and knowing which one it changes is the fastest way to work out whether it would help you. None of them changes the rates.
Schemes that change when you pay
Cash accounting bases the return on money received and paid rather than invoices issued and received. For a business whose customers pay slowly it is the single most useful scheme available, because you stop funding VAT on invoices nobody has settled. The trade is that you cannot reclaim input tax until you have paid the supplier either, so a business that buys on credit and sells for cash generally does worse on it than on the standard method.
Schemes that change how much you pay
The flat rate scheme replaces the ordinary net calculation with a single percentage of your VAT-inclusive turnover, and you generally stop reclaiming input tax. Whether it helps depends entirely on how much VAT you are charged: a labour-heavy business with few taxable purchases can end up paying less, and a business with real input costs will pay more. The retail and margin schemes are the same idea for different situations, the second-hand margin scheme charging VAT only on the margin rather than the full selling price.
Schemes that change how often you file
Annual accounting means one return a year with instalments through it, which suits steady turnover and a preference for fewer deadlines, at the cost of a balancing payment that can be a surprise if the year moved. Nothing about any of these changes what is taxable or at what rate, and every one of them has entry and exit turnover conditions, so read the current GOV.UK page for the scheme before assuming you qualify or that you can leave when you want.
Questions people ask about vat schemes
Which VAT scheme should a small business use?
It depends what you want changed. Cash accounting if customers pay slowly, flat rate if you have few taxable purchases, annual accounting if you want fewer deadlines. The standard method is right for many businesses.
Does the flat rate scheme mean I pay less VAT?
Only if your input tax is small. You pay a percentage of gross turnover and generally stop reclaiming input tax, so a business with real taxable costs usually pays more.
Can I be on more than one scheme?
Some combine and some do not, and each has its own turnover conditions for joining and leaving. Check the current GOV.UK page for the specific schemes before relying on a combination.