Vat Flat Rate Changes
Flat Rate Scheme changes to impact upon consultants
An amendment to the VAT Flat Rate Scheme percentages has been announced by HM Revenue & Customs impacting upon businesses with limited costs, which primarily includes consultants and contractors who operate through a limited company.
From 1 April 2017 businesses currently using the flat rate scheme will have to determine whether they fall within the definition of a limited cost trader, which is when the 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 £1,000 per annum
The definition of goods for the purpose of this new legislation excludes capital expenditure, food or drink for consumption by the business or its employees and vehicles, vehicles parts and fuel. The goods must also be used exclusively for the purposes of the business and not include any element of private use.
Where a business falls within this definition then they will have to use the newly established 16.5% rate when determining their VAT liabilities under the flat rate scheme. This will inevitably lead to an increase in amounts payable as HMRC believe that these small business captured by the new rules have unfairly benefitted in the past by using the flat rate scheme.
If the new regulations are likely to affect you then it may be worth conducting a calculation to see if it will still be advantageous to continue submitting VAT returns under the flat rate scheme or switching to the normal method of calculating the VAT liability.
Simpson Wood can assist you and advise further regarding the above as well as on all VAT matters, please contact us for help.
Internet Link: gov.uk Flat Rate Scheme