The VAT flat rate scheme

November 29th, 2016 | Posted in Small Business, VAT

VAT Flat Rate Scheme and Service BusinessesIn the Autumn Statement on 23 November 2016 a surprise announcement was made about the VAT flat rate scheme with the introduction from 1 April 2017 of a new flat rate of 16.5% for those businesses with very low costs. The new rate has been introduced to target micro-businesses who were using the flat rate scheme for financial gain rather than to genuinely save on administration time, but it unfortunately also catches out businesses that are legitimately using the scheme.  Businesses either currently using the flat rate VAT scheme or thinking of doing so in the future will therefore need to consider whether the new 16.5% rate will apply to them and what the implications of this would be. The 16.5% flat rate percentage applies if a business meets the definition of a newly created term called a ‘limited cost trader’. A limited cost trader is a business whose VAT-inclusive expenditure on goods is either:

  • 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.

Stamp duty rush holds up homebuyers amid processing delays https://www.ft.com/content/c258598c-ede7-4ce6-aae1-f93d00e204d1?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

Busy law firms repay state furlough cash https://www.ft.com/content/199fecc3-601a-4f24-8685-6e98cc5185ee via @financialtimes

Today is the deadline for individuals not already in the self assessment system and who became self-employed or a landlord for the first time in 2019-20 to register for self assessment - more info in the blog here http://ow.ly/5vdJ50BJCZ4

Reminder that UK residents who sell or gift UK residential property and make a taxable gain are now required to report and pay any capital gains tax owed within 30 days of completing the transaction.

https://www.ft.com/content/b0a83a73-ac68-48ce-8a89-61bc71eda272 via @financialtimes

ICAEW CharteredAccountants BLK RGB copy
QB Advanced Certification logo
Xero Logo Blue