Are you a “Limited Cost Trader”?
Answering the easy question first- if you use the VAT Flat Rate Scheme and you spend less than 2% of your VAT inclusive turnover or less than £1000 per annum you are classed as “Limited Cost Trader” and you need to look at how the changes will affect you now, because the new rules apply with effect from the 1st April.
Regardless of the business category you currently fall into, if you are caught by the Limited Cost Trader rules you will have to apply the new flat rate of 16.5% to your income.
This will potentially affect:
- Accountants, tax consultants and lawyers
- IT consultants, management consultants and data processors
- Those in farming and forestry
- Labour only building and construction
- Sport and fitness instructors
Note this is not an exhaustive list but just serves to illustrate the variety of businesses likely to be affected and if you think you might be affected, what can you do–apart from going on a spending spree? Indeed you may be better off reverting to normal VAT accounting but you would need to factor in potentially higher costs of compliance.