VAT

Posted November 24, 2016

Changes to the VAT Flat Rate Scheme

In his first Autumn Statement as Chancellor, Philip Hammond, announced an introduction of a new 16.5% flat rate of VAT for businesses which have a very low cost base. These businesses will be known as a ‘limited cost trader’.

From 1 April 2017, new and existing users of the Flat Rate Scheme will need to determine whether they are a limited cost trader to establish their VAT rate, this also applies to existing users of the Flat Rate Scheme.

A limited cost trader has been defined by HMRC as one that spends less than 2% of its sales on goods (not services) in an accounting period.

The spending on goods cannot include the purchase of:

capital items

food and drink

vehicles, vehicle parts or fuel (unless the business carries out transport services (eg a taxi business)).

A business will also be a limited cost trader if it spends less than £1,000 on goods per year, even if this is more than 2% of the businesses turnover.

The full guidance on the changes to the Flat Rate Scheme are available here: https://www.gov.uk/government/publications/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note

For more information, or advice on the changes to the VAT Flat Rate Scheme, please contact us.

 

The information contained above is provided for information purposes only and is not intended to amount to advice on which reliance should be placed. We therefore disclaim all liability and responsibility arising from any reliance placed on such information. Professional advice should be obtained before taking or refraining from taking any action as a result of the above contents.