VAT Flat Rate Scheme Changes

April 10th, 2017  |  Published in Uncategorized

Well that was too easy, wasnt it?

From 1st April 2017, the government introduced a new definition of a ‘limited cost trader” (see definition below) to the flat rate VAT scheme. The result is that affected contractors must use a new percentage of 16.5%. The introduction of this new rate means the flat rate scheme is no longer suitable for the vast majority of contractors, who will now generally be better suited to the standard rate VAT scheme, where they can at least offset some of the VAT paid on purchases against what they have to pay HMRC.


The definition of the newly introduced category of a “limited cost trader” is one whose VAT inclusive expenditure on “goods” is either; less than 2% of their VAT inclusive turnover, or less than £1,000 in total, per year. Note that “goods” does not include the following:

  • Services (such as telephone, internet, accountancy fees, insurance, rent)
  • Travel, subsistence or mileage
  • Gifts or donations
  • Training
  • Capital items (items with a useful life of more than one year)
  • Pension contributions

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