From 1st April 2017, H M Revenue & Customs will increase the flat rate percentage for “limited cost traders” to 16.5% after an announcement by the Chancellor of the Exchequer at the Autumn Statement on 23 November 2016.
This was made to increase tax revenues in the face of what the government views as abuse of the scheme.
What is a limited cost trader?
A limited cost trader is defined as one 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 £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
- capital expenditure
- food or drink for consumption by the flat rate business or its employees
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example, a taxi business – and uses its own or a leased vehicle to carry out those services)
What does this mean to me?
If you currently use the VAT Flat Rate Scheme, it may no longer be the most tax efficient VAT method for your business. Whilst it is your responsibility to ensure that VAT returns are completed correctly, we are here to help.
If you are on this scheme, please contact us and we will calculate the best approach for your business.
If you have any questions or further concerns – please get in touch with our friendly team…