VAT Flat Rate Scheme changes
As announced in the Autumn Statement, the UK Government is to clamp down on the "inappropriate use" of the VAT flat rate scheme (FRS) for small businesses.
With effect from 1st April 2017, businesses operating the flat rate scheme for VAT will need to use a new percentage if they meet a new definition of being a “Limited Cost Trader”. This is defined as a business where, in a given accounting period:
- Expenditure on goods (excluding capital goods, subsistence and vehicle parts/fuel) is less than 2% of VAT inclusive turnover, or
- Expenditure on the same goods is more than 2% of turnover but less than £1,000 per annum.
Draft legislation is expected to clarify matters; in particular, how the level of VAT on services incurred is dealt with.
You can calculate if you need to pay the higher rate and work out which goods count as costs by visiting the GOV.uk website here
Planning point: You can review whether the VAT Flat Rate Scheme is beneficial to your business by downloading the VAT Flat Rate Scheme reckoner spreadsheet from our website here http://crmoxford.co.uk/Downloads-Forms.