HMRC are to introduce an additional test from 1 April 2017 that will determine the flat rate percentage used by traders.
Traders that meet the new definition of a ‘limited cost trader’ will be required to use a fixed rate of 16.5%. This will include traders who are already using the Flat Rate scheme, and many at rates lower than 16.5%.
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
For some businesses – for example, those who purchase no goods or services, or who make significant purchases of goods and services – the outcome of the test will be self-evident.
Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate. Businesses using the scheme will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.
It would be advisable that all registered users of the Flat Rate Scheme take advice before April 2017, to ensure that there is still an advantage to staying in the scheme.
For more information contact www.exceeduk.co.uk.