The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses (‘limited cost traders’). The highest rate is currently 14.5%.
The definition of a limited cost trader is one whose VAT inclusive expenditure on goods is either:
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%. As there are a number of flat rate clients, more detail can be found at the following link: VAT
The definition of a limited cost trader is one whose VAT inclusive expenditure on goods is either:
- less than 2% of their VAT inclusive turnover in a prescribed accounting period
- greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
- capital expenditure
- food or drink for consumption by the flat rate business or its employees
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services)
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%. As there are a number of flat rate clients, more detail can be found at the following link: VAT
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