From 1st April 2017 HMRC are altering the VAT flat rate scheme to include a “limited cost trader” category.
Are you a “limited cost trader”?
You must use the limited cost trader rate of 16.5% if the following applies to you:
- Spending on qualifying goods is less than 2% of sales
- Spending on qualifying goods is less than £1,000 per year
Goods are moveable items or materials exclusively used in your business. You can also include gas and electricity. If you’re estimating, give realistic figures.
- any services – which is anything that isn’t goods
- expenses like travel and accommodation
- food and drink eaten by yourself or your staff
- vehicle costs including fuel unless you’re in the transport business using your own, or a leased vehicle
- rent, internet, phone bills and accountancy fees
- gifts, promotional items and donations
- goods you will resell or hire out unless this is your main business activity
- training and memberships
- capital items for example office equipment, laptops, mobile phones and tablets
Following these changes, you have 3 options.
- If your annual turnover is below £83,000 you can deregister for VAT
- You can opt to use the standard VAT scheme. This means you would need to calculate the VAT on your sales at 20% and then deduct any VAT you suffer on your purchases. (If we do your VAT return for you we will need to review our price for the additional work involved)
- Continue on the Flat Rate scheme using the new rate of 16.5%. This calculation means
Net Sale: £1,000
VAT @ 20% : £200
Gross Sale: £1,200
Vat @ 16.5%: £198
If you would like any further advice, please get in touch.
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