12/05/2017 – VAT – LIMITED COST TRADER
Are you now qualified as a 'limited cost trader'?
From April 2017, many small limited companies which have low annual costs will face a higher VAT liability if they use the Flat Rate scheme.
According to the HMRC, this is defined as a business which has a VAT-inclusive expenditure on relevant goods of 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 £1,000 per annum if the prescribed accounting period is on year.
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%.