Philip Hammond announced big changes in his first (and last) Autumn Statement around the amount of VAT that small businesses will have to pay.
From 1st April 2017, businesses using the flat rate VAT scheme that spend less than two per cent of sales on VAT inclusive goods (not services) in an accounting period, or more than two per cent but less than £1,000 a year, will pay 16.5 per cent VAT to HMRC.
Goods must be used exclusively for the purpose of the business and exclude capital expenditure, food and drink, vehicles, parts for vehicles and fuel (except where the business carries out transport services such as a taxi).
The flat rate VAT scheme sets out to simplify taxation for smaller businesses with an annual turnover of less than £150,000 and HMRC hopes the changes will stamp out any misuse of the rules. However, some ‘limited cost traders’ that are labour-intensive businesses and spend little on goods, like IT contractors, consultants and hairdressers, could see the amount of VAT they pay increase as a result.
If your business is already using the flat rate VAT scheme or thinking of joining the scheme, contact your local office today to see whether you’ll be classed as a limited cost trader.