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27.

March

2017.

Flat rate VAT plans are confusing businesses, warns Stafford accountancy firm

C O M M E N T

Ref:HWPR002
Date: 27 March 2017

Flat rate VAT plans are confusing businesses,

warns Stafford accountancy firm

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Changes to the flat rate system of paying value added tax (VAT) that come into effect from 1 April are already confusing businesses of all types and sizes, Howards, the Stafford-based firm of chartered certified accountants, has warned.

When the new tax year begins, many small businesses that use the existing flat rate VAT scheme but spend very little on goods - including raw materials and services - will be considered "limited cost traders". This means that companies that spend less than 2% of their total turnover (or less than £1,000 a year) on goods will operate on a VAT rate of 16.5%. This test should be done every time a business completes a VAT return.

The following items are always excluded from the calculations: vehicles, road fuel and motor parts, food, drink and capital items (unless the business is a transport business which owns or leases a vehicle in its business in which case motor expenses can be included).

The rule changes are expected to increase the VAT paid by labour-intensive businesses where very little is spent on goods. This could affect IT contractors, consultants, hairdressers and accountancy firms, for example, and will have an impact on construction workers who supply their labour but raw materials are provided by the main contractor.

Howards' Managing Director Matt Bailey is concerned that these changes, which were announced in last year's Autumn Statement by the Chancellor Philip Hammond, will put extra administrative burdens on already stretched businesses and this could have a negative effect.

"As a professional accountancy firm we understand all the minutiae involved in these changes to the flat rate VAT scheme," Matt said, "but when you are running a small business with a handful of employees then this is just one more headache that you do not need."

Caption: Infographic - Flat Rate VAT changes for small businesses

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About Howards

Howards was founded in 2005 following the merger of Barrington's and Wood & Co, two well-established and successful Stafford firms of accountants. The combined experience and areas of individual expertise that the company now enjoys has been passed on to its clients, who all benefit from Howards' deeper knowledge base and wider range of professional services. As well as Managing Director Matt Bailey, the senior team at Howards consists of commercial and taxation specialist Ryan Hudson, audit expert Rebecca Nott - who has been with the firm for over 13 years - and Nick Archer, who specialises in client services and business development.

Follow Howards on Twitter -@Howards_CA