From April 2017, those businesses classed as 'limited cost traders' will be automatically required to use the flat rate percentage of 16.5% when calculating their VAT.
The VAT Flat Rate scheme is available to businesses with turnover of £150,000 per annum or less. Before April, is it calculated as a percentage determined by the type of business performed by the sales figure in that quarter and the balance paid over to HMRC. It provided advantages to those service companies who's overheads were low.
What's a 'limited cost trader'?
Changes to the scheme will mean a business will be required to check actual spending it's spending on 'goods' each quarter and if spending is either less than £250 in the quarter or less than 2% or its gross sales for that period, then the business will have to use 16.5% as their VAT flat rate percentage.
Goods includes, supplies of gas and electricity and exclude vehicles, fuel, motor expenses, capital goods and food and drink. Rent, telephone and internet are classed as services so are also excluded.
HMRC have brought in the changes to not only limit the advantages to using the flat rate scheme but also, it is gearing up to HMRC's 'making tax digital' changes next year where quarterly reporting will become mandatory.
The changes will see more time spent on administration by the business owner on analysing purchases made in the quarter. It would be necessary to see whether it is worth continuing under the scheme and paying 16.5% or deregistering depending on the circumstance.
If you have any concerns regarding changes to the VAT Flat rate scheme, please contact us on 0845 303 1144 or email firstname.lastname@example.org.
Please note, all our content is for general guideline only, every case is different and we would recommend speaking to us before taking any action as a result of the content. The content was correct at the time it was published.