Flat Rate VAT Scheme Changes 2017

New Flat Rate VAT Scheme changes are being introduced in April 2017 including a fixed rate of 16.5% for all Limited Cost Business participants, and changes to which businesses qualify as Limited Cost Businesses.

The Flat Rate VAT scheme was set up for businesses with a turnover of less than £150,00o, designed to offer some tax relief and reporting benefits. However in recent years, HMRC has noted a number of larger companies manipulating their turnover to take advantage of the scheme. HMRC have now introduced changes, legally binding as of 1st April 2017 to prevent this.

Flat Rate VAT Scheme Changes

As of 1st April 2017, all businesses operating within the Flat Rate VAT scheme will have to pay 16.5% VAT regardless of their industry. With the new changes introduced the Flat Rate Scheme may no longer be the most appropriate for some businesses, therefore it is recommended to speak to a VAT expert to see if it is the best option for your business.

Harvey Telford & Bates Chartered Accountants in Shrewsbury provide complete VAT guidance and support, including recommending appropriate VAT and Tax options for all businesses. Our team can provide advice on the new Flat Rate Scheme changes, and whether these are beneficial, or if alternative VAT options may be more suitable for your business.

Who can participate in the Flat Rate VAT Scheme?

The Flat Rate VAT Scheme is open to the businesses that meet the following criteria:

  • you are eligible to be registered for VAT;
  • your taxable turnover (excluding VAT) in the next year will be £150,000 or less;
  • your business is not ‘associated’ with another.

If you meet the criteria above and wish to participate in the Flat Rate Vat Scheme, you will need to establish if you are Limited Cost Business or Limited Cost Trader. If it is established that you qualify as a Limited Cost Business will need to pay the fixed rate of 16.5% (commencing 1st April 2017).

You’re a Limited Cost Business or Trader if the amount you spend on relevant goods including VAT is either:

  • less than 2% of your VAT flat rate turnover;
  • greater than 2% of your VAT flat rate turnover but less than £1000 per year.

It is important to note that whilst you may meet the criteria noted, it may not always be cost effective to manage your VAT through a Flat Rate Vat Scheme once the new rates are in place. Examples of when you may wish to consider alternative VAT options include:

  • you buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases;
  • you regularly receive a VAT repayment under standard VAT accounting;
  • you make a lot of zero-rated or exempt sales.

If you are unsure how the changes may impact you, our business VAT experts can provide you with the support required to fully assess the options available to you. If you would like further information on the Flat Rate VAT Scheme changes, our team of Chartered Accountants in Shrewsbury can assist – from providing advice or managing all elements of VAT schemes and liaising with HMRC on your behalf.  Call 01743 462604 or email [email protected] today.