A change which was briefly mentioned by the Chancellor in the Autumn Statement could have important implications for businesses using the VAT flat rate scheme.
It applies to businesses identified by HMRC as having “limited costs”.
From April 2017 businesses using the flat rate scheme to account for VAT and who supply services rather than goods will need to check level of costs they incur to make sure they are using the correct flat rate. If purchases of goods are below certain limits they may need to use an increased flat rate of 16.5%, which may make the flat rate scheme no longer beneficial.
This rate will apply if a business’s purchases of goods are less than 2% of their VAT inclusive turnover or if more than 2%, less than £1000 per annum. The definition of goods excludes capital expenditure, food and drink for consumption or vehicles, vehicles parts or fuel except for businesses supplying transport services.
Further details will be in the draft legislation which will be published on 5 December, but any affected businesses will need to consider whether the flat rate scheme will still be appropriate for them after April 2017.