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Flat Rate VAT Scheme Changes

Flat Rate VAT Scheme Changes

Flat Rate VAT Scheme Update

“Tackling aggressive abuse”

VAT – Flat Rate Scheme changes and updates

From April 1st , the VAT Flat Rate Scheme (FRS) will see its first large change in many years where a business will now have to decide whether they meet the definition of a limited cost trader being a large part of the new legislation.

Limited cost trader – VAT FRS 16.5% new rate

There will now be a test to complete for companies who are not sure where they lie on this subject to determine if they should be using the new FRS rate 16.5%. Some companies are simple and can be identified immediately i.e. a company who purchases no goods or a company that makes a significant purchase of goods.

As per HMRC guidelines:

“What is a limited cost trader?

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
capital expenditure

  • food or drink for consumption by the flat rate business or its employees
  • vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.”

Who will this effect?

Essentially anyone who falls in the above criteria, main areas affected will be people like:

  • Accountants
  • Consultants
  • IT Contractors
  • “Labour only” Subcontractors
  • Hairdressers

You can use the HMRC checker to determine your status for the scheme:
Limited cost trader

If you are not classed as a Limited cost trader please see the rates below to establish your FRS %

Flat Rates for types of businesses

Type of business Current VAT flat rate (%)
Accountancy or book-keeping 14.5
Advertising 11
Agricultural services 11
Any other activity not listed elsewhere 12
Architect, civil and structural engineer or surveyor 14.5
Boarding or care of animals 12
Business services not listed elsewhere 12
Catering services including restaurants and takeaways 12.5
Computer and IT consultancy or data processing 14.5
Computer repair services 10.5
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture not listed elsewhere 6.5
Film, radio, television or video production 13
Financial services 13.5
Forestry or fishing 10.5
General building or construction services* 9.5
Hairdressing or other beauty treatment services 13
Hiring or renting goods 9.5
Hotel or accommodation 10.5
Investigation or security 12
Labour-only building or construction services* 14.5
Laundry or dry-cleaning services 12
Lawyer or legal services 14.5
Library, archive, museum or other cultural activity 9.5
Management consultancy 14
Manufacturing fabricated metal products 10.5
Manufacturing food 9
Manufacturing not listed elsewhere 9.5
Manufacturing yarn, textiles or clothing 9
Membership organisation 8
Mining or quarrying 10
Packaging 9
Photography 11
Post offices 5
Printing 8.5
Publishing 11
Pubs 6.5
Real estate activity not listed elsewhere 14
Repairing personal or household goods 10
Repairing vehicles 8.5
Retailing food, confectionery, tobacco, newspapers or children’s clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing not listed elsewhere 7.5
Retailing vehicles or fuel 6.5
Secretarial services 13
Social work 11
Sport or recreation 8.5
Transport or storage, including couriers, freight, removals and taxis 10
Travel agency 10.5
Veterinary medicine 11
Wholesaling agricultural products 8
Wholesaling food 7.5
Wholesaling not listed elsewhere 8.5

*than 10% of the turnover for those services. If more than this amount, the business is classed as ‘General building or construction services’.‘Labour-only building or construction services’ means building services where the value of the materials supplied is less