{"id":27596,"date":"2017-01-11T11:18:35","date_gmt":"2017-01-11T11:18:35","guid":{"rendered":"https:\/\/www.clearbooks.co.uk\/?p=27596"},"modified":"2017-01-11T11:25:43","modified_gmt":"2017-01-11T11:25:43","slug":"changes-vat-flat-rate-scheme-frs","status":"publish","type":"post","link":"https:\/\/www.clearbooks.co.uk\/blog\/changes-vat-flat-rate-scheme-frs\/","title":{"rendered":"Changes to VAT Flat Rate Scheme (FRS)"},"content":{"rendered":"

In his Autumn Statement of November 2016 the Chancellor announced changes to the FRS designed to combat perceived abuse; predominantly by labour only agency workers. \u00a0It will however affect many other service sector businesses.<\/span><\/p>\n

The announcement was followed by <\/span>HMRC guidance<\/span><\/a> and then, in December 2016, by <\/span>Draft legislation<\/span><\/a>.<\/span><\/p>\n

The changes are still subject to consultation but here is a summary of the proposals.<\/span><\/p>\n

 <\/p>\n

What\u2019s changing?<\/b><\/h2>\n

The FRS is a simplified VAT scheme in which the business charges standard VAT to its customers but who then pays VAT to HMRC as fixed percentage of their turnover, with little if any ability to reclaim the VAT they suffer on purchases and expenses.<\/span><\/p>\n

The FRS percentage used is based on industry sectors however, from 1 April 2017, HMRC will introduce a new category, \u201climited cost trader\u201d, with a VAT flat rate of 16.5% which, for businesses with low purchases of goods, overrides the industry rates.<\/span><\/p>\n

So for a business which falls foul of the new rate, for every \u00a3 of VAT it charges its customers, 99 pence is paid over to HMRC. \u00a0Consequently the government is anticipating many businesses either deregistering or moving to standard VAT registration, in order to reclaim VAT on their expenditure.<\/span><\/p>\n

 <\/p>\n

What is a \u201cLimited cost trader\u201d? <\/b><\/h2>\n

A business is a limited cost trader if its VAT inclusive expenditure on goods is:<\/span><\/p>\n