What’s new in VAT?
In October 2016 changes to the VAT Flat Rate scheme were announced in order to stop the misuse of the flat rate VAT scheme.
- From April 2017 HMRC will introduce a new category of trader, a ‘limited cost trader’, with a Flat Rate Scheme percentage of 16.5%
- Under the new proposal a business within the FRS will have to consider for each accounting period whether it meets the conditions for a limited cost trader.
- If so its Flat Rate percentage will be 16.5% regardless of their business sector.A business is a limited cost trader if its VAT inclusive expenditure on goods is:
- Who is a limited cost trader?
- Less than 2% of relevant turnover, or
- More than 2% but less than £1,000 per year, pro-rated for the length of the VAT return period, e.g. £250 per quarter.Goods are those used exclusively for business purposes, excluding
- Relevant turnover is the amount that you apply your flat rate scheme percentage to, i.e. VAT inclusive supplies, including exempt supplies.
- Capital expenditure
- Food & drink for consumption by the Flat Rate business or its employees
- Vehicles, vehicle parts and fuel, unless the business is one which supplies transport services such as a taxi business
Beans will as always be proactive ahead of this change. We will identify in March any clients at risk under this new rule and sit down or telephone to discuss the changes with our clients and the recommended next steps. For some clients it might