FLAT RATE VAT PLANS ARE CONFUSING BUSINESSES
March 30th, 2017.



Changes to the flat rate system of paying value added tax (VAT) that come into effect from April the 1st are already confusing businesses of all types and sizes, Howards, the Stafford-based firm of chartered certified accountants, has warned.


When the new tax year begins, many small businesses that use the existing flat rate VAT scheme but spend very little on goods – including raw materials and services – will be considered limited cost traders. This means that companies that spend less than 2 per cent of their total turnover (or less than £1,000 a year) on goods will operate on a VAT rate of 16.5 per cent. This test should be done every time a business completes a VAT return.

The following items are always excluded from the calculations: vehicles, road fuel and motor parts, food, drink and capital items (unless the business is a transport business which owns or leases a vehicle in its business in which case motor expenses can be included).


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