Changes to the VAT Flat Rate Scheme Today – A reminder

 

Flat Rate Scheme (FRS)

This is a timely reminder for all businesses using the FRS that changes to the scheme come into effect TODAY: 1 April 2017.

The first matter to consider is if your business is a “limited cost trader”. You can check whether you are on the HMRC website here – this is a test imposed by HMRC to check if the value of your “relevant goods” exceeds 2% of your turnover or £250 per quarter – whichever is higher

 

If you are NOT a limited cost trader no further action is required.

If you ARE a limited cost trader (which is likely to include, but not limited to, labour-intensive businesses where very little is spent on goods) there are the following options:

 

  1. Continue on the FRS but using the increased percentage of 16.5% (which is effectively equal to the 20% rate).
  2. Leave the FRS and use conventional VAT accounting
  3. Deregister for VAT if a business’ turnover is below that of the deregistration limit – which will be £83,000 pa from tomorrow.

 

Definition of “Relevant Goods”

Note – the “relevant goods” referred to above mean goods that are used exclusively for the purposes of a business, but do not include:

  • vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
  • food or drink for you or your staff
  • capital expenditure goods of any value
  • goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
  • goods that you intend to re-sell or hire out unless selling or hiring is your main business activity
  • any services

 

As may seen, the definition is very restrictive.  Failure to recognise this change is likely to result in penalties and interest being levied.

If you would like any advice on this matter, please contact LeeP Accountants of Huntingdon & Peterborough as soon as possible considering the timing of the implementation on 01733 699033 or email Contact@leepfinancial.co.uk