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VAT Flat Rate Scheme – New HMRC rules from April 2017

Author: Henry Ejdelbaum

Tags: Flat Rate, hmrc, VAT

I’m afraid today’s blog is of a more technical nature than usual. But its sometimes important that we share these changes with you, especially when it could save your business money. From the 1st April 2017 there is a significant rule change on the Flat Rate Scheme which may have a negative impact on many small businesses. Currently the scheme can be generous to small businesses as they would pay VAT to HMRC at a flat rate percentage of their gross turnover. The percentage rate can be anything from 4% to 14.5% depending on the industry the business is in.

HMRC are bringing in a new percentage for so called Limited Cost Traders which will be 16.5% on gross turnover.

 But what is a Limited Cost Trader?

If your VAT inclusive expenditure on goods is under 2% of your VAT inclusive turnover in a VAT quarter or greater than 2% of your VAT inclusive turnover but less than £250 in a VAT quarter then you will be a Limited Cost Trader in that period.

This could mean a huge increase in VAT owed to HMRC, especially for small businesses on a flat rate percentage of less than 10%. Sound confusing? Interested in finding out more? As with all rule changes you should get advice to make sure you are looking after your business in the most cost efficient way. Speak to us today and we can help.

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