FINANCE VAT Flat Rate scheme: changes
set to impact small businesses Leading chartered accountants Newby Castleman is advising small businesses to guard against being caught out by changes to the VAT Flat Rate scheme.
The VAT Flat Rate scheme is designed to relieve the administrative burden on small businesses associated with the collating and paying of VAT. It is available to most traders with a
turnover of less than £150,000 and works by allowing them to simply pay a single flat rate of VAT over to HMRC based on their gross turnover rather than having to calculate the amount due by subtracting their output VAT from their input VAT. Input VAT recovery under the scheme is restricted to a few very limited circumstances.
‘Any business on the Flat Rate scheme now needs to look at these changes’
The flat rate varies by industry and profession,
from a minimum rate of four per cent for certain retailers such as butchers and bakers to a maximum of 14.5% for the likes of IT and software consultants. However, loopholes in the scheme have been
exploited by some businesses to save thousands in VAT – such as traders finding ways to categorise
themselves under alternative industries, while in some cases larger businesses have divided themselves up into a network of smaller businesses to reduce their turnover below the £150,000 limit. Now the Government is set to act, with
Chancellor Phillip Hammond announcing plans to introduce a flat rate of 16.5% for ‘limited cost traders’. Under the new conditions businesses on the scheme must be able to demonstrate its VAT-inclusive
expenditure is both above £1,000, and above two per cent of its gross turnover, in order to claim its industry-specific rate. Brent Goodwin (pictured), VAT Manager at
Newby Castleman, said: “This scheme was initially designed to cut red tape for those businesses, but they will now need to make complex calculations based on their expenditure as a percentage of their turnover, in order to determine if they can remain on their chosen rate. “Any business on the Flat Rate scheme, particularly
those which only incur a small amount of input VAT, now needs to look at these changes to avoid being caught out by an unexpected tax bill, and reassess whether this scheme still offers them the best option.”
Insolvency numbers rise after Brexit vote
New analysis from KPMG reveals that 2016 saw the reversal of a six- year downward trend in levels of insolvency for British businesses, following a rise in companies entering into administration in the second half of the year. The numbers, taken from notices
in the London Gazette, show that 1,174 companies, entered administration across the UK during 2016, compared with the 15-year low of 1,111 in the previous year. The picture in the Midlands shows a similar trend, with insolvencies in the region increasing in the year from 163 to 169. Chris Pole, Restructuring Partner
at KPMG in the Midlands, believes ongoing uncertainty in the geo- political and economic environment, coupled with the depreciation of sterling, is now starting to be felt more keenly by the region’s businesses. He said: “Although the numbers
have risen, the failure rate of region’s businesses following the Brexit vote was lower than initial predictions. However, while businesses may have adapted well to Brexit, it’s likely that they will face ongoing financial pressures as a result of the uncertainty in the market.”
business network March 2017
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