Changes to the new VAT Flat Rate scheme will predominantly affect small businesses who are considered to fall into the ‘Limited Cost Traders’ classification. These businesses will notice a sizeable change in the amount of VAT they will pay.
The effects on Small Businesses
Small business that fall into the ‘Limited Cost Traders’ classification will be affected.
Limited Cost Traders
A ‘Limited Cost Trader’ is a business that will spend less than 2% of all their yearly turnover on goods. Please note that all services are excluded. A business will also automatically be classified as a ‘Limited Cost Trader’ if it spends less than £1000 on goods.
Items Excluded from the ‘cost of goods’ calculation
The following items are excluded from the ‘cost of goods’ calculation.
- Travel and accommodation expenses
- Business food and drink expenses
- Expenses for the running of a company vehicle
- Rent, Internet, Phone expenses
- Any Capital items
- Training and membership expenses
- Any donations and gifts
- Expenditure on services
The new VAT Flat rate
HMRC will set the Flat VAT rate at 16.5% for ‘Limited Cost Traders’ with an effective rate is calculated at 19.8%.
The reasons for the changes to the Flat Rate VAT Scheme
HMRC wants to stop the misuse of the scheme by businesses.
The Date the new VAT changes will occur
The new Flat VAT rate will come into effect from the 1st of April 2017
The next steps a Small Business should take
If you feel that your small business will be affected by these changes then contact our team of dedicated accountants. Our accountants are experts in their field and will assess your business to see how you will be affected by these changes. Please contact us today for a free consultation!