The VAT Flat Rate Scheme (FRS) is a simplified scheme for small businesses. It is a popular scheme with businesses that incur very little vatable expenditure. Currently there are a number of different sectors, with rates ranging from 4% to 14.5%.
Following on from the Autumn statement, the Chancellor announced the introduction of a new 16.5% VAT flat rate for businesses with limited costs, known as ‘limited cost traders’. This new rate will take effect from 1 April 2017, and will affect many of the smaller business within the consultancy and contracting sector.
Is my business a limited cost trader?
A limited cost trader is 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.
For this purpose, goods must be used exclusively for the purpose of the business, but do not include the following;
- Capital expenditure e.g. laptops, mobiles phones, office equipment etc.
- Food or drink for consumption by the flat rate business or its employees
- Vehicles, vehicle parts and fuel and or travelling.
If, after excluding the above items, expenditure on goods for your business is less than 2% of VAT inclusive turnover or £250 per quarter, then the new 16.5% flat rate will apply to your business from 1 April 2017. If a VAT period straddles 1 April 2017, the new rate will then apply to the relevant proportion of the VAT period. Read More