From 1 April 2017 HMRC will introduce a new business type known as a ‘limited cost business’, which will have a Flat Rate Scheme percentage of 16.5%.
You’ll be classed as a ‘limited cost business’ if your goods cost less than either:
• 2% of your turnover
• £1,000 a year (if your costs are more than 2%)
What are goods as far as the new rules are concerned?
In general terms, “goods” include items bought for resale and materials to be made into items for sale.
Obviously it is not as simple as that and you will need to review your costs to see if any might qualify as “goods”. Visit HMRC’s website for further guidance.
What options do I have, if I am a limited cost business?
The new rules come in on 1st April and from this date you have the following options:
• remain on the flat rate scheme with a flat rate percentage of 16.5%
• leave the flat rate scheme and account for VAT on the standard scheme, allowing you to claim back all of your input VAT
• de-register from VAT if you fall below the de-registration threshold of £83,000 on a long-term basis. However,there can be pitfalls in de-registering and you need to seek professional advice before taking this option.
Need some advice?
To find out more about how the changes to the flat rate scheme will affect your business please contact either Tamara Spencer ([email protected]) or Rebecca Hamilton ([email protected]).