From 1st April businesses using the flat rate scheme for VAT may need to change the percentage they use.
The businesses concerned are those who have, in the words of HMRC, ‘Limited Costs’. This means a business which has VAT inclusive expenditure of the lower of
a) 2% of their VAT inclusive turnover or,
These businesses are termed ‘A limited cost trader’ and must use 16.5% as their flat rate from 1st April 2017.
You will need to calculate your relevant costs. They must be wholly & exclusively for the business.
Costs that can be included are:
a) Stationery and office supplier
b) Gas and electricity used exclusively for your business
c) Stock and products for resale
d) Cleaning products
e) Software provided on a disk
The main exclusions are;
a) Services, including advertising, accountancy, rent, electronic services, software
b) Capital expenditure
c) Fuel, unless you operate in the transport sector
d) Hired goods where the ownership will not transfer to your business
These rules were only outlined clearly on 28th
February but it is expected that the majority of service businesses,
particularly those operating from home or operating in the digital sector, will
Many of these businesses have historically been categorised as ‘any other category listed elsewhere’ are likely to be on 12%. Hence this change could represent a significant increase in the amount paid to HMRC.
To check whether to continue with the flat rate scheme or revert to the normal scheme use the online calculator .
For detailed information direct from HMRC see VAT Notice 733 here .
This information is for guidance only and you should seek professional advice or contact HMRC for assistance if you are in doubt about your individual situation. Read more about the Tax services that we offer at BusinessHeads and contact us on: 01273 882200 for more advice.
All details above were correct at the time of publishing - for more up to date information please
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