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:
- Continue on the FRS but using the increased percentage of 16.5% (which is effectively equal to the 20% rate).
- Leave the FRS and use conventional VAT accounting
- 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.