Business Partners | Important Changes to VAT Flat Rate Scheme
Accounts, tax returns, bookkeeping, VAT and payroll for small businesses like yours...
chartered accountants, accountant, bookkeeping, market harborough, leicestershire
17480
single,single-post,postid-17480,single-format-standard,ajax_fade,page_not_loaded,,qode-child-theme-ver-1.0.0,qode-theme-ver-13.3,qode-theme-bridge,wpb-js-composer js-comp-ver-4.11.2.1,vc_responsive

Important Changes to VAT Flat Rate Scheme

Important Changes to VAT Flat Rate Scheme

VAT Flat Rate Scheme

The VAT Flat Rate Scheme has been around for some time to help reduce the administrative burden in preparing VAT returns.

Under the scheme, a set percentage is applied to the turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase you make in the period. The percentage rates are predetermined according to the trade sector of your business, ranging from 4% to 14.5%. Normally you choose the business description closest to your business and apply the percentage associated with that description from the Revenues tables.

Philip Hammond, in his inaugural Autumn Statement, has opted to introduce a new 16.5% rate for businesses defined as ‘limited cost traders’, a move which could affect many contractors and service-based businesses with minor outgoings.

Who is a limited cost trader?

A limited cost trader will be defined as a business whose VAT inclusive expenditure on goods (note Goods not Services) is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • Greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000)

For the purposes of the limited cost measure, goods must be used exclusively for the business, but exclude the following items:

  • Capital expenditure
  • Food or drink for consumption by the flat rate business or its employees
  • Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – e.g. a taxi firm – and uses its own or leased vehicle to work)

The exclusions of the above items are designed to prevent traders from buying low-value everyday items or one-off purchases in order to inflate costs beyond the 2% figure and escape the new 16.5% threshold.

What does it mean for you?

The Chancellor believes the new 16.5 per cent VAT flat rate will stamp out “inappropriate” use of the scheme, but the announcement is likely to  harm service-based businesses such as contractors and consultants.

It will be crucial for businesses currently on the flat rate scheme to consider whether this applies to them. If the measure means the Scheme is no longer beneficial for them, they may have to revert to standard VAT accounting and must take action ahead of April 2017.

If you think you might be affected by this measure, please seek advice from us before taking action.

I presume the Office for Tax Simplification were once again asleep at the wheel!

 

—————————————————————-
This post is necessarily brief and is for general guidance only and does not constitute advice. You should always ask for specific advice based upon your own circumstances.

No Comments

Post A Comment