Changes to the VAT Flat Rate Scheme

BUSINESS BRAIN
Rennie Welch LLP

Q: My business is registered for the VAT Flat Rate Scheme however I have heard that changes were announced in the Autumn Statement that may affect my use of this scheme?
Anon

A:The VAT Flat Rate Scheme (FRS) was designed to simplify VAT accounting for small businesses by providing the opportunity to pay VAT on VAT inclusive turnover at a rate specific to the trade sector in which the business operates rather than separately declaring Output VAT on taxable supplies and recovering Input VAT charged on expenditure. For some businesses with limited costs this offered an opportunity to reduce their VAT liabilities.

In order to address this, HM Revenue & Customs have announced the introduction of a new 16.5% VAT Flat Rate from 1st April 2017 for those businesses using the scheme who are deemed to be limited cost traders. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either less than 2% of their VAT inclusive turnover or is more than 2% of their VAT inclusive turnover but less than £1000 per annum. Some costs are specifically excluded for the purpose of these tests. Anti-forestalling legislation was published on 23rd November 2016 to prevent businesses from invoicing or receiving payments in advance in respect of services to be supplied on or after 1st April 2017 in order to avoid an increase in VAT.

All businesses currently using the VAT Flat Rate Scheme or considering joining should review their position to identify whether they will be affected by these changes.

Rennie Welch LLP accept no liability on the basis of this article and detailed advice, taking into account individual circumstances, should be obtained before entering into any transaction.

Have you got a question you would like us to answer in our column? If so please email your query to thebusinessbrain@renniewelch.co.uk.