Is it time to leave the Flat Rate Scheme?

From April 2017 Limited cost businesses will have to use 16.5% flat rate.

If you are a Low or Limited cost business then it may well be time to leave the flat rate scheme or see your flat rate increase to 16.5%.

A limited cost business is defined as:

• Amount spent on GOODS including VAT is below 2% of their VAT inclusive turnover
• More than 2% of VAT inclusive turnover but less than £250 per quarter (£1,000 per annum)

Goods, for the purposes of this, must be used exclusively for the purpose of the business and not used for any private use.

Such as:

• Shop – buying stock to sell
• Goods that are bought for use in the provision of services, for example a hairdresser buys shampoo, conditioner, hairspray, colour etc.
• Fish and chip shop buys food to cook and sell to the public.
• Manufacturer buys raw materials that are made into a product and sold.
• Office supplies that are used by the business.

Also included is:

• Electricity & Gas that is used exclusively for the business

EXAMPLE

If your sales before VAT are £6,000, standard rated VAT, £1,200 therefore total £7,200

VAT at new 16.5% Flat Rate, £7,200 x 16.5% = £1,188

HMRC have let you keep £12 to offset against any VAT you have paid.

Most businesses will have higher input VAT than this.

Leaving the Flat rate Scheme

If you want to leave then write to HMRC:

HM Revenue and Customs
Imperial House
77 Victoria Street
Grimsby
Lincolnshire
DN31 1DB

Ask your accountant if you need help or talk to us.