From 1 April 2017 you could be classified as "limited cost trader" if your Business spends less than 2% of its VAT inclusive turnover or is more than 2% but less than £1,000 a year on goods. You would have to use flat rate of 16.5% instead of the rate used currently.
Capital goods, services ,food and drink and costs relating to cars (except transportation businesses) do not count as goods for this purpose and wont be included. Examples Before FRS changes Sales £1,000 plus VAT at 20% = £1,200 Amount due to HMRC (14.5% rate) = £174 VAT retained £200 - £174 = £26 After FRS changes Sales £1,000 plus VAT at 20% = £1,200 Amount due to HMRC (16.5% rate) = £198 VAT retained £200 - £198 = £2 Leaving the business just £2 to offset against VAT paid on all expenses. For some businesses it might be better to change to normal basis of accounting for VAT or for smaller business with turnovers below the VAT de-registration threshold, it may be appropriate to de register altogether. For further information please contact us on info@intact-accounting.co.uk.
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