News
Changes To The Flat Rate VAT Scheme From April 2017
10 - 02 - 2017
The Flat Rate VAT Scheme is changing from April 2017.
What is the Flat Rate VAT
Scheme?
The Flat Rate VAT scheme simplifies the calculation of VAT for small businesses by applying a flat rate percentage to their VAT inclusive turnover. Flat rate percentages are lower than the current standard VAT rate of 20%. The business retains the difference between the VAT charged on invoices and the VAT paid over to HMRC.
The
flat rate percentage is currently determined by the trade sector into which a
business falls for the purposes of the scheme.
You will need to be VAT registered in order to apply for the Flat Rate VAT Scheme and if a business qualifies for the scheme a reduction of 1% can be applied in the 1st year of the scheme. The scheme can become invaluable to a business if its turnover is above £150,000. It’s also worth noting that a business will also not be able to charge the lower rate VAT on purchases over £2,000.
Joining and leaving the scheme is quite simple, when joining the scheme you can apply online when you register your business for VAT or post a VAT600 FRS form to the address on the form. Clients of Foremans LLP are advised whether they should register and we can register the business for the scheme under the relevant sector. If you feel the scheme is no longer beneficial to your company or you decide you no longer want to be Flat Rate VAT registered you can opt out by writing to HMRC. If you do choose to leave the scheme you won’t be able to join it again for another 12 months.
Changes to the Flat Rate VAT Scheme – April 2017
From
01 April 2017 businesses registered for Flat Rate VAT must also determine
whether they meet the definition of a ‘Limited Cost Trader’. Limited Cost Traders
will need to use the new Flat Rate VAT percentage of 16.5%.
A Limited Cost Trader is anyone who’s VAT inclusive expenditure on goods is either less than 2% of their VAT inclusive turnover in a prescribed accounting period or anyone who’s VAT expenditure is greater than 2% of their VAT inclusive turnover but is less that £1,000 per annum.
Goods that are allowable must be used entirely for the purpose of the business, although this excludes goods such as vehicles, vehicle parts and fuel (unless your business is involved in transport), food and drink consumed by the trader and employees and also capital items. Unfortunately there is no information as to whether service charges are included in the definition of goods.
There’s a 2 month consultation period after which the legislation will be finalised by the government and the changes are to be confirmed. If you are on the Flat Rate VAT scheme and fall under the Limited Cost Trader category, you will need to apply the relevant flat rate percentage rate as of 01 April 2017.
Foremans
can undertake a review for those registered under the Flat Rate VAT scheme. Get
in touch by calling 01244 625 500 or
email your details to ContactUs@foremansllp.com