There is a new flat rate of VAT being introduced from 1 April 2017 for ‘limited cost traders’.
Anyone who spends less than 2% of their VAT inclusive income on goods (or less than £1,000 per annum) must apply the new flat rate of 16.5% when calculating the amount to be paid over to HMRC.
The 2% relates to goods (not services), so you can’t include:
– any services – which is anything that isn’t goods
– expenses like travel and accommodation
– food and drink eaten by yourself or your staff
– vehicle costs including fuel unless you’re in the transport business using your own, or a leased vehicle
– rent, internet, phone bills and accountancy fees
– gifts, promotional items and donations
– goods you will resell or hire out unless this is your main business activity
– training and memberships
– capital items for example office equipment, laptops, mobile phones and tablets
You can include:
– stationery and other office supplies to be used exclusively for the business
– gas and electricity used exclusively for your business
– fuel for a taxi owned by a taxi firm
– stock for a shop
– cleaning products to be used exclusively for the business
– hair products to use to provide hairdressing services
– standard software, provided on a disk
Goods must be used exclusively for the purpose of the business – this means that you must not include the cost of any goods that are used in full or in part for your own private use.
Whether the new rate has to be used or not is calculated on a return by return basis.
If your turnover is (and is likely to remain) below the VAT deregistration limit, currently £81,000, then it may be worth deregistering as virtually all of the benefit has been taken away – net sales of £50,000 with VAT of £10,000 will result in £9,900 being paid over to HMRC.
Graham Berry FCCA – March 2017
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