By bonjean2, Nov 25 2016 09:26AM
Earlier this week the new chancellor stood up to give his first Autumn Statement. Amongst it all there was really only one major firm announcement that will effect contractor companies in the short term, and that was regarding the VAT Flat Rate Scheme.
Most contractors currently pay either 12, 14 or 14.5% VAT on their gross VAT inclusive turnover.
The government has announced that it will be introducing a new 16.5% rate with effect from 1 April 2017 for businesses with limited costs, such as many labour only businesses. HMRC has stated that this is to “tackle aggressive abuse of the VAT Flat Rate Scheme” which is a rather odd phrase to choose when all that contractors have been doing is applying the current rules correctly.
Note that a limited cost trader is a business whose VAT inclusive expenditure on goods is either:
(a) less than 2% of their VAT inclusive turnover in a prescribed accounting period (b) greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000) ‘Goods’ excludes items of capital expenditure, food and drink that is consumed by the business and vehicles, vehicle parts and fuel for businesses not involved in the transport service sector. Draft legislation will be published on 5 December 2016.