As a result of the Autumn Statement on 23 November 2016, the Chancellor of the Exchequer announced the introduction of a new 16.5% VAT flat rate for businesses with limited costs. HMRC have now released legislation detailing the changes that come into effect from 1 April 2017. Businesses using the Flat Rate Scheme (FRS) will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.
FRS Businesses must determine whether they meet the definition of a limited cost trader.
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
· Less than 2% of their VAT inclusive turnover in a prescribed accounting period.
· Greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
· Capital expenditure.
· Food or drink for consumption by the flat rate business or its employees.
· Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services).
If you think that you might come into the category of a Limited Cost Trader then please do not hesitate to contact the office on 0151 644 4848 to discuss your options moving forward. For more detail on VAT and the FRS view our webpage here.