Hey kids. HMRC have updated their guidance around the Flat Rate Changes. As I'm such a nice chap, I've cut and pasted the relevant sections:
Nothing more than clarification really.
Limited cost businesses
These changes take effect on 1 April 2017. You shouldn’t use the limited cost business rate before this date.
If you’re a limited cost business, you should use the flat rate of 16.5%. There’s a simple calculator available to help businesses work out whether they’re a limited cost business – if you want to use the calculator, see the VAT Flat Rate Scheme - How much you pay page
Before you start you’ll need some basic information – use the information that relates to your most recent VAT return period. If you submit quarterly returns this will cover a 3 month period. If you submit annual returns this will cover a full year. You’ll need to know:
your relevant turnover – this is explained in section 6
the cost of goods – goods must be used exclusively for the purpose of your business and certain goods are excluded from this test, this is explained in section 4.6
You’re a limited cost business if the amount you spend on relevant goods including VAT is either:
less than 2% of your VAT flat rate turnover
greater than 2% of your VAT flat rate turnover but less than £1000 per year
If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.
For some businesses this will be clear, other businesses – particularly those whose goods are close to 2% – may need to complete this test each time they complete their VAT return. This is because you can move from a limited cost rate of 16.5% in one period to your relevant sector rate in another. This would happen if your costs fluctuate above and below 2%.
If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting – you may want to check to make sure the Flat Rate Scheme is still right for you.
Example 1
A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods.
This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.
Example 2
A business has a flat rate turnover of £20,000 a quarter. It spends £325 on relevant goods.
This is more than £250 but less than 2% of the flat rate turnover so the rate they need to use is 16.5%.
Example 3
A business has a flat rate turnover of £10,000 a quarter. It spends £225 on relevant goods.
This is more than 2% of the flat rate turnover but less than £250 so the rate they need to use is 16.5%.
These changes take effect on 1 April 2017. You shouldn’t use the limited cost business rate before this date.
If you’re a limited cost business, you should use the flat rate of 16.5%. There’s a simple calculator available to help businesses work out whether they’re a limited cost business – if you want to use the calculator, see the VAT Flat Rate Scheme - How much you pay page
Before you start you’ll need some basic information – use the information that relates to your most recent VAT return period. If you submit quarterly returns this will cover a 3 month period. If you submit annual returns this will cover a full year. You’ll need to know:
your relevant turnover – this is explained in section 6
the cost of goods – goods must be used exclusively for the purpose of your business and certain goods are excluded from this test, this is explained in section 4.6
You’re a limited cost business if the amount you spend on relevant goods including VAT is either:
less than 2% of your VAT flat rate turnover
greater than 2% of your VAT flat rate turnover but less than £1000 per year
If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.
For some businesses this will be clear, other businesses – particularly those whose goods are close to 2% – may need to complete this test each time they complete their VAT return. This is because you can move from a limited cost rate of 16.5% in one period to your relevant sector rate in another. This would happen if your costs fluctuate above and below 2%.
If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting – you may want to check to make sure the Flat Rate Scheme is still right for you.
Example 1
A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods.
This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.
Example 2
A business has a flat rate turnover of £20,000 a quarter. It spends £325 on relevant goods.
This is more than £250 but less than 2% of the flat rate turnover so the rate they need to use is 16.5%.
Example 3
A business has a flat rate turnover of £10,000 a quarter. It spends £225 on relevant goods.
This is more than 2% of the flat rate turnover but less than £250 so the rate they need to use is 16.5%.
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