Introduced more than a decade ago, the Flat Rate VAT scheme makes life easier for small businesses, removing complicated administration and providing a buffer between incomings and outgoings. Since 1st April there are important changes to the Flat Rate VAT scheme that could affect you.
More than 410,000 businesses across the country are currently using HMRC’s Flat Rate scheme (FRS) and some of the region’s smallest firm’s look set to be caught up in the change.
The change won’t affect all businesses, but a large proportion of those on the FRS will now have to apply 16.5% VAT to their gross sales. Due to this, many SMEs who are currently on the FRS may choose to withdraw and record VAT in the usual way. Alternatively SMEs can stay within the scheme and retain its more agreeable terms by displaying they are not a ‘limited cost trader’.
Here are some of the main changes that could affect your business;
- If you’re a limited cost business, you should use the flat rate of 16.5%. There’s a simple calculator available to help you work out whether you’re a limited cost business – http://bit.ly/2lWieTS
- Goods must be used exclusively for the purpose of the business and exclude capital expenditure, food and drink and vehicles.
Although the Flat Rate VAT scheme makes taxation simpler for businesses that have an annual turnover of less than £150,000, companies that are labour-intensive and spend small amounts on goods could see an increase in the amount of VAT they pay as a result of the changes.
How do I know if my business is affected?
HMRC is set to introduce a new online tool that will help businesses decide whether or not they should be using the new flat rate going forward. With this yet to be introduced we are urging all businesses that believe they are affected by the changes to the Flat Rate VAT scheme and would like more information to contact their local Champion office today.