As announced in the Autumn Statement, there are significant changes ahead for companies using the Flat Rate Scheme (FRS) for VAT. The FRS will continue to run, however many businesses will find it is no longer economical to use.
Under the FRS, a business ignores VAT incurred on purchases when reporting VAT, with the exception of capital items costing over £2,000. The business simply multiplies the gross turnover for the period by a percentage set for that particular trade sector, for example accountancy and legal services are 14.5%.
The government believes many have been abusing the system and so is changing the rules to make it less attractive. From 1st April 2017 a ‘low cost trader’ will be required to use the higher percentage of 16.5%.
Will this affect you? A ‘low cost trader’ is a business whose expenditure on goods is less than 2% of its gross turnover, or if more than 2% of its turnover, the amount spent on goods is less than £1,000 per year (Not including capital items, motor expenses or food and drink for consumption by the business).
Green & Co have a dedicated VAT department who can advise on how the changes may affect you, to speak to one of our team, contact us on 01633 871122.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.