The new changes to the VAT Flat Rate scheme will primarily affect small businesses who are categorised as ‘Limited Cost Traders’ who will see a substantial change in the amount of VAT they will have to now pay.
The Date the new VAT changes will occur
The new VAT changes will come into effect from the 1st of April 2017
The new VAT Flat rate
HMRC will now fix the new Flat VAT rate at 16.5% for ‘Limited Cost Traders’. The effective rate is calculated at 19.8%.
The effects on Small Businesses
All small business that fall into the ‘Limited Cost Traders’ category will be affected.
Limited Cost Traders
A ‘Limited Cost Trader’ can be defined as a business that will spend less than 2% of turnover on goods where all services are excluded. However, a business will automatically fall into the ‘Limited Cost Trader’ category if it spends less than £1000 on goods.
Items Excluded from the ‘cost of goods’ calculation
The items excluded from the ‘cost of goods’ calculation are as follows:
- Travel and accommodation expenses
- Business food and drink expenses
- Expenses for the running of a company vehicle
- Rent, Internet, Phone expenses
- Any Capital items
- Training and membership expenses
- Any donations and gifts
- Expenditure on services
The reasons for the changes to the Flat Rate VAT Scheme
HMRC wants to stop the exploitation of the scheme as is being misused by many businesses.
The next steps a Small Business should take
Most small business will be affected by these changes. That is the reason why our team of dedicated accountants are available for consultation. Our accountants are experts in their field and will evaluate your business to see how you will be affected by these changes. Please contact us today for a free consultation!