Changes to the VAT Flat Rate Scheme

HMRC has announced that it will be making changes to the VAT Flat Rate Scheme from 1 April 2017.

The main change is the introduction of an additional flat rate of 16.5%. This rate will apply to businesses in any sector but only if they have limited costs. All businesses using the flat rate scheme should check whether they will fall to be limited cost businesses.

Limited costs refers to costs of goods being below 2% of turnover or below £1000 per annum. Further details may be found in VAT Notice 733.

There will not be changes to existing flat rates for businesses that are not limited costs businesses.

HMRC has made available a calculator online to help businesses work out of they are a limited cost businesses – please go to www.gov.uk and search for “Check your VAT flat rate”

Any business who is not a limited cost business should continue to use the relevant VAT flat rate but monitor business costs. Any business who is a limited cost business must decide whether it is beneficial to continue to use the flat rate and if it is to use the new rate of 16.5% from 1 April 2017. The new rate may result in having to pay more VAT.

If you have any queries re the changes, please contact Nina Basra on 0845 643 055 or Nina.Basra@covertax.co.uk.