If you are in the Flat Rate VAT Schem, you should have received a letter from HMRC about the forthcoming changes to the VAT flat rate scheme from 1 April 2017.
At the moment, if you are on the flat rate scheme, you use the flat rate percentage for your business sector.
From 1 April, if you are a “limited cost trader” you should use 16.5% as your percentage, regardless of your business sector.
You are a “limited cost trader” if:
- Your expenditure on goods (including VAT) is less than 2% of your sales (including VAT) for a given period.
- Or if your expenditure on goods is less than £1000 (per year, or a pro-rata amount of a year), even if you spend more than 2% of your sales figure on goods.
“Goods” must be exclusively for business and excludes food or drink consumed by employees, vehicles and vehicle parts and fuel (unless your business is transport-related, eg a taxi driver). It excludes capital expenditure.
The “Anti-Forestalling Provisions” – basically prevents you from invoicing in advance of 1 April.
A possible reason for the change is to clamp down on businesses who make large “profits” from being in the flat rate scheme.
What you need to do next if you are in the Flate Rate VAT Scheme:
- check your total costs (including VAT) and compare them to your total sales (including VAT) to see whether you fall within the definition of a “limited cost trader” (you actually need to do this every quarter!)
- If you are a “limited cost trader” you will have the following choices:
- move to the 16.5% flat rate from 1 April.
- Move to a standard VAT scheme
- Deregister (if you are below the VAT threshold of £83,000 (from 1 April 2017)
Please do feel free to contact me on 01604 244028 if you would like to discuss your VAT further.