Changes to the VAT Flat Rate Scheme
You may have seen that HMRC is introducing changes to the flat rate vat scheme which will take affect from the 1 April 2017. These changes affect "limited-cost traders". A limited cost trader is a trader whose expenditure on the purchase of physical items for the business is less than:
The greater of
1) £1000 per year (ie £250 per vat quarter), and
2) 2% of turnover
Businesses that are defined as "limited-cost traders" will be obliged to use a flat rate of 16.5% which will eliminate almost all of the profit previously made by using the flat rate scheme.
If this applies to you then there are three choices open to you:
1) De-register for VAT (if your turnover is less than £83,000 per annum).
2) Remain on the flat rate scheme at the increased rate.
3) Switch to conventional VAT accounting where you pay VAT on the difference between the VAT charged on your sales and the VAT incurred on your expenses.
Option 1 avoids the need to submit quarterly VAT returns, however you will not be able to recover any VAT on expenditure. In almost all cases it will beneficial to switch to conventional accounting. The VAT on routine business services such as accountancy, telephone, printing and stationary is likely to be greater than the very small profit on the increased flat rate scheme.
The other advantage of conventional accounting is that you would be able to recover VAT on purchases of new capital equipment and any other non recurring expenditure that might arise.
If you wish to switch from Flat Rate VAT accounting to conventional VAT accounting you will need to write to HMRC to inform them that you wish to leave the VAT Flat Rate Scheme with effect from 1 April 2017.
JND Accounting in Nottingham can help you with VAT registration, preparing your VAT returns, calculations and submissions in compliance with HMRC regulations. Before filing your VAT returns, we can review your bookkeeping to ensure the data entered is accurate. We can also review your business operations and make recommendations to ensure you are on a VAT scheme that is beneficial to you. Book an appointment with us today to discuss your requirements.