Have you heard about the new Flat Rate VAT Scheme and are wondering how it will affect you and your business? Don’t worry. We’ve put together a brief guide explaining what it means for you.
The New Flat Rate VAT Scheme 2017 came into effect from the 1st April 2017. This new scheme sees a new 16.5% flat rate for businesses who have limited costs. The scheme is intended to remove any opportunity for contractors to make high splurges from the scheme and to stop the “aggressive abuse” of the system. The new flat rate will affect those businesses who are using the VAT Flat Rate Scheme, but who spend very little on goods, including raw materials – an example of this is firms providing different services. If you find yourself caught by the new rules you will end up paying more VAT.
The VAT Flat Rate Scheme (FRS) is an accounting scheme for small businesses. Businesses can currently determine what flat rate percentage to use by reference to their different trading sectors. Those businesses who currently use the scheme or intend on joining the scheme must also determine whether they meet the “limited cost trader” criteria to include themselves under the new flat rate scheme. This is easier to determine for some businesses than others and those who are unsure will need to complete a simple test to work out whether the 16.5% rate is for them.
You should compare your VAT inputs and trading activity to see if you fall into the category of a ‘low-cost trader’ and if you do, then it’s up to you to calculate whether it will be beneficial or not to switch to the standard VAT scheme and see if you can pay less tax. If you need assistance from a reliable accountant, then visit our accountants in Melton Mowbray for expert information.