Flat rate VAT schemes may not be the first thing you usually think of when you wake up in the morning. However, following the announcements made by Chancellor Philip Hammond in 2016’s Autumn Statement, you may want to take a closer look at your VAT registration, as the upcoming changes could have an impact on your business! What is the VAT flat rate scheme? The VAT flat rate scheme is a simplified accounting option for small businesses. The scheme is available to businesses which are eligible to be registered for VAT and whose taxable turnover (excluding VAT) in the next year will be £150,000 or less. Once in the scheme, a business can remain in it as long as its taxable turnover for the current year is not more than £230,000. The flat rate scheme is designed to simplify the recording of sales and purchases. Under the scheme a business works out the VAT that it is required to pay over to HMRC by applying a flat rate percentage to its gross (VAT-inclusive) turnover. The flat rate percentage depends on the type of business. How will the scheme change? From 1 April 2017 onwards, in determining which percentage to use, a business will also need to determine whether it is a ‘limited cost trader’. This is a trader whose VAT inclusive expenditure on goods is either: Less than 2% of their VAT inclusive turnover for the prescribed accounting period, or More than 2% of VAT inclusive turnover but less than £1,000 a year. In working out if the 2% test is met, the following purchases are ignored: Capital expenditure (such as new equipment used in a business) Expenditure on food and drink (such as lunches for staff) Expenditure on vehicles, vehicle parts and fuel What should I do if I’m already on the Flat Rate scheme? You should carefully compare your trading activity and costs against the definitions published by the Government. In the meantime you should consider setting aside funds to address any increase in your Flat Rate scheme level. Clients who are already on the scheme will be contacted to confirm their position. If you would like to discuss this further, please contact one of our team on 01482 861919 or visit www.finnies.org.uk.