Flat Rate VAT is changing
There are some changes coming in from 1 April on the Flat Rate Scheme for VAT which may affect you if you use the scheme. HMRC have realised that a lot of people are only using the Flat Rate Scheme if they are making a saving from it, so they are increasing the percentage ‘limited cost traders’ will need to apply. Instead of being the current percentage of your gross turnover you use, after 1 April you will need to calculate and pay over 16% of your gross turnover, which works out as 19.8% of your net turnover, a saving of 0.2% of the 20% you are charging customers!
To avoid this, you need to have a cost of goods (excluding all services, capital items, food and drink and vehicle costs) being used exclusively for the business of at least 2% of your VAT inclusive turnover, or under £1,000 in total. If you do not satisfy this criteria, there are two choices going forward:
1. Continue with the Flat Rate Scheme and apply the higher rate, or
2. Move onto the standard VAT scheme, where you need to pay over all VAT on sales for the quarter after deducting all vat on expenses incurred, which would include services (for example our fees). It does mean more work each quarter, but is likely to result in more VAT being recovered over the course of the year, depending on the level of services you incur each year.
If you would like to discuss how this will affect you, please do contact the office on 01732 760387.