VAT Flat Rate Scheme – New HMRC rules from April 2017

I’m afraid today’s blog is of a more technical nature than usual. But its sometimes important that we share these changes with you, especially when it could save your business money.

From 1 April 2017 there is a significant rule change on the Flat Rate Scheme which may have a negative impact on many small businesses. Currently the scheme can be generous to small businesses as they would pay VAT to HMRC at a flat rate percentage of their gross turnover. The percentage rate can be anything from 4% to 14.5% depending on the industry the business is in.

HMRC are bringing in a new percentage for so called Limited Cost Traders which will be 16.5% on gross turnover.

 But what is a Limited Cost Trader?

If your VAT inclusive expenditure on goods is under 2% of your VAT inclusive turnover in a VAT quarter or greater than 2% of your VAT inclusive turnover but less than £250 in a VAT quarter, then you will be a Limited Cost Trader in that period.

This could mean a huge increase in VAT owed to HMRC, especially for small businesses on a flat rate percentage of less than 10%. Sound confusing? Interested in finding out more? As with all rule changes you should get advice to make sure you are looking after your business in the most cost-efficient way. Speak to us today and we can help.

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