The VAT flat rate scheme
- less than 2% of their VAT inclusive turnover in a prescribed accounting period
- greater than 2% of their VAT inclusive turnover but less than £250 per quarter (£1,000 per annum)
HMRC’s definition of ‘goods’ for this purpose is stringent and any such goods must be used exclusively for the business but does not include the following types of expenditure:
- capital expenditure, e.g., computers, office furniture, plant & machinery, etc
- food or drink for consumption by the flat rate business or its employees
- vehicles, vehicle parts and fuel (except for a business that provides transport services, e.g., a taxi business)
- goods for the purpose of resale unless the main activity of the business is the sale of those goods
- goods for disposal as promotional items, gifts or donations
HMRC have developed an online calculator for businesses to calculate if they need to pay the higher 16.5% flat rate and work out which goods count as costs. The tool can be accessed here.