Larsen & Co



The Autumn Statement included a proposal to introduce a new class of trader from 1 April 2017 in an attempt to reduce the savings that certain businesses achieve under the flat rate scheme.

The new proposal requires all users of the flat rate scheme to check on every return they submit whether they are a “limited cost trader”. If so, they must use the new rate of 16.5% for their flat rate scheme calculations (15.5% for businesses in the first year after registration). The effect wipes out all savings that a business can make on the flat rate scheme leaving virtually all businesses worse off than if they had not used the flat rate scheme.

A limited cost trader is one whose VAT-inclusive expenditure on goods (not services) is lower than either 2% of the gross sales for the quarter or £1,000 per annum (time apportioned for the VAT period e.g. £250 for a quarterly VAT return).

When checking the total expenditure on goods the following purchases cannot be included;
• Those for private and business purposes;
• Capital expenditure;
• Food or drink;
• Vehicles, vehicle parts and fuel (except if you run transport services such as a taxi firm).

For VAT returns starting on or after 1 April 2017 if you are likely to be a limited costs trader you will almost certainly be better of leaving the flat rate scheme. Depending on your circumstances you can either move to normal accounting for VAT or de-register from VAT if you are below the de-registration threshold.

Once you have left the scheme you cannot apply to rejoin for a period of at least 12 months.