What do you need to know?

There are some changes to the VAT Flat Rate Scheme and you may be affected. 

What’s changing? 

From 1 April 2017 HMRC is introducing an additional flat rate of 16.5%. This rate will apply to businesses in any sector, but only if they have limited costs. You are a limited cost business if the cost of your goods is below £1,000 per year. If your VAT return is less than one year the figure is the relevant proportion of £1,000.  For example, on a quarterly return this is £250. 

What’s not changing? 

The existing flat rates will continue to be available for those flat rate businesses that don’t qualify as a limited cost business.

How do I know?

To work out whether you are a limited cost business, use this simple calculator by HMRC 

 I’m not a limited cost trader – what do I do next? 

If you’re not a limited cost business, we would continue to use the relevant VAT flat rate for your business sector. However, your business costs may change during your VAT reporting year. So, before filing your VAT return, we would check again to ensure that you’re applying the correct rate. 

I’m a limited cost trader – what do I do next? 

If you decide to remain on the Flat Rate Scheme, you must use the new 16.5% rate from 1 April 2017.

Using the new rate may mean that you pay more VAT than you do now. You may wish to reconsider whether you still want to use the Flat Rate Scheme. If you’re trading below the VAT registration threshold of £83,000, we would advice you to deregister with effect from 1 April 2017.

 Where to find more information

VAT Notice 733 provides detailed guidance for Flat Rate Scheme users on here.