From 1 April 2017 important changes to the Flat Rate VAT Scheme were introduced.
The VAT flat rate scheme (FRS) is a simplified method which allows small businesses to work out their VAT liability by applying a fixed percentage to the VAT inclusive turnover. In certain cases use of the FRS can provide a cash advantage. Unfortunately, there has been abuse of the FRS, so HMRC has changed the rules.
The new rules for “limited cost traders” make it more difficult to obtain a cash advantage from the FRS and in some cases the continued use of the FRS may actually cost your business money.
A VAT registered business which spends less than 2% of its gross turnover, or less than £1,000 per year on goods, will have to use an FRS percentage of 16.5%. The “goods” counted for this test do not include food and drink for the employees, motor expenses, or capital items.
The high percentage of 16.5% means the business will have to pay over almost all the VAT it collects, with no deductions permitted for VAT incurred on purchases. If your business supplies services and you use the FRS, please contact us to discuss whether you should remain within the scheme.
GMcG Belfast: Eddie Broomfield 028 9031 1113
GMcG Lisburn: Christine Harrison 028 9260 7355
GMcG Portadown: Stuart McDonald 028 3833 2801