As from the 1st April 2017 there will be changes made the the VAT Flat Rate Scheme which will affect a limited number of registered users of the scheme.
According the HM Revenue and Customs the changes have been brought about because:
The Flat Rate Scheme is a simplification not a tax allowance. More and more often it is being used for a cash benefit rather than a simplification. Some have been exploiting the scheme in this way, which is unfair to those businesses not eligible to use the scheme and to those using it for the purpose it was intended.
Therefore a new 16.5% rate will be introduced for businesses with limited costs, such as many labour only businesses. Whilst the new rate comes into effect from 1st April 2017, anti-forestalling provisions are also in force.
What is a Limited Cost Trader
A “Limited Cost trader” is defined as one that spends less than 2% of its VAT inclusive turnover on goods in an accounting period. A firm will also be defined as a limited cost trader if its expenditure on goods is greater than 2% of its VAT inclusive turnover but less than £1,000 a year.
For companies that do not qualify as a limited cost business the existing flat rates will continue to be available.
So, how do you know if you are a “limited cost trader” and therefore affected by this change?
Either speak to us on 01751-475810 or use the HM Revenue and Customs calculator on www.gov.uk and search for “Check your VAT flat rate”.