With effect from 1/4/2017 HMRC introduced new rules to the Flat Rate Scheme (FRS) to try to reduce what they see as significant financial benefits received by some businesses using the scheme.
Under the new rules businesses will have to use a new FRS percentage of 16.5% when calculating the VAT due on their sales if they fail to meet these new rules. HMRC have referred to such businesses as Limited Cost Traders (LCT).
This additional test will obviously make use of Flat Rate Scheme much less unattractive to some businesses so it is important to consider your businesses circumstances and whether they would likely be a Limited Cost Trader before deciding to opt for the scheme.
If your VAT-inclusive expenditure on relevant goods is not more than 2% of your FRS turnover in your VAT period or is not more than £1000 for annual VAT period (£250 if your VAT period is a normal quarterly VAT or £83.33 if your VAT period is a monthly VAT period) then you will be a Limited or Low Cost Trader and will be forced to use the 16.5% rate.
Technically, yes, although if you buy and sell goods as your main business activity, for example if you are a retailer, manufacturer or restaurant, you are much less likely to fail the test than if your main business activity involves you providing services and you have little or no expenditure on goods.
This is the most important issue in the new rules but unfortunately there is no definitive list of what you can treat as relevant goods, although HMRC provides some guidance within para 4.6 of HMRC VAT Notice 733.
However, from queries that have already been asked of us, here are a few pointers:
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