PM+M reports that a large proportion of North West SMEs are not prepared for major VAT Flat Rate Scheme changes

PM+M – the Blackburn headquartered chartered accountancy, business advisory and wealth management group – has seen a sharp rise in calls from North West businesses who don’t understand the upcoming changes to the Flat Rate Scheme which come into force on 1st April and is warning those affected to act quickly.

Changes are being introduced as HM Revenue & Customs believe there has been aggressive abuse of the Flat Rate Scheme over recent years so it is introducing a new rate of 16.5% for ‘limited cost traders’.

At present businesses operating in different sectors pay varying percentages in the FRS. The new 16.5% will apply if spending on ‘relevant goods’ including the VAT element for the quarter is less than 2% of gross sales for the same quarter or if spending on ‘relevant goods’ for the quarter is less than £250 including VAT in the same quarter.

Andrew Cowking – partner at PM+M – believes the term ‘relevant goods’ is where much of the confusion lies along with an ambivalence to what’s about to happen.

He explains: “The term ‘relevant goods’ does not apply to services and must be used exclusively for business purposes but exclude many things including goods for resale (if selling is not your main activity); goods you don’t ordinarily sell; vehicles, car parts or fuel (unless the business is in transport, freight or taxis, for example); food or beverages for consumption by the owner or employees; capital expenditure goods as well as promotional goods.

Andrew added: The Flat Rate Scheme has provided a financial gain for many but that’s now over. It’s imperative that people understand how the new rules apply to them and what action they should take; whether that’s staying on the Flat Rate Scheme as they won’t be classed as a ‘limited cost trader; staying on the Flat Rate Scheme and reviewing relevant spending on  a quarterly basis using the 16.5% rate when necessary; leaving the Flat Rate Scheme and preparing Returns on the Standard Rate Scheme; deregistering for VAT completely or whether they should look at an alternative planning option.”  He concluded: “Our fear is that many businesses are sticking their heads in the sand but that’s not an option and could prove to be a costly mistake.”

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