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Flat Rate VAT and how it is changing

Shock announcement

From 1 April 2017, the VAT flat rate scheme is being changed to include a new “limited cost trader” definition.  If a business is classed as a limited cost trader, it must then use 16.5% for calculating VAT rather than its own industry standard % .

The target market appears to be service businesses, in particular contractors whose main source of expenditure will be travel, telephone, broadband, rental and subsistence costs.  Contractors must therefore now prepare themselves to use the higher 16.5% rate for calculating VAT.

For those of you who do not know how it works, here is a brief summary:

What does the change mean?

Life will definitely get more complicated – so much for the Government’s Office of Tax Simplification!

Benefits of Flat Rate VAT Scheme (FRS)

Disadvantages of FRS

If you would like to talk more about the changes to the Flat Rate VAT scheme and how it might affect your business  please call or drop me an email.