The Chancellor’s Autumn Statement announced a change to the Flat Rate VAT Scheme which many small businesses use to simplify their VAT record keeping.
From April 2017 businesses who may have found it financially advantageous to use this scheme may find it will no longer be so. The HMRC website has not yet provided much information about this change but the BBC news has an article which states that businesses which have very low costs will become “limited cost traders”. A “limited cost trader” is a business which spends less than 2% of its annual sales figure on goods or less than £1,000 per annum. This is most likely to apply to professional services firms and those which are labour intensive and do not buy goods or materials.
Limited cost traders will be able to continue using the Flat Rate Scheme but the Flat Rate percentage they will have to use from 1 April 2017 will be 16.5% instead of the current 12-14.5% currently used by these type of businesses.
Any sales made between 23rd November 2016 and 31 March 2017 which are advanced sales relating to a period after 1 April 2017 must use the new Flat Rate percentage.
This is an outline of the information currently available and it is important that each business owner or their advisor makes their own assessment as to whether the Flat Rate Scheme continues to be the most appropriate scheme for their business.