As of 1 April 2017, new rules have been introduced which will affect businesses using the VAT flat rate scheme and who have limited expenditure on “goods”.
The Flat Rate Scheme is a measure introduced by government to help with VAT compliance. It allows a trader to calculate their VAT based on a percentage of turnover only and avoid the administration of claiming back VAT on purchases. Many businesses using the VAT flat rate scheme have benefited from actual VAT savings. However HMRC have decided that for some businesses with limited VAT costs the scheme is too generous. With this in mind they have introduced a new flat rate percentage of 16.5% for “limited cost businesses”. These rules will typically affect a business currently using perhaps 12% as their flat rate percentage, the new rate from April 2017 will be a much higher 16.5%. In most cases we have looked at so far, VAT liabilities will be less by moving back to the traditional way of calculating VAT and leaving the flat rate scheme.
If you would like advice on the changes please speak to Justin Smith on 0113 2044 228.