Warning over changes to VAT flat rate scheme
BUSINESS owners have been warned to avoid the pitfalls of a new rate for the VAT flat rate scheme, which was announced in the Chancellor's autumn statement.
James Self, who runs TaxAssist Accountants in Portsmouth, said: ‘Many service-based local business owners, such as IT contractors and consultants, already utilise the optional VAT flat rate scheme to simplify their tax affairs, but it is vital they check if the newly-imposed 16.5 per cent flat rate applies to them.
‘Although the new rate does not go live until April, it could mean that the scheme is no longer beneficial for them and they may have to revert to standard VAT accounting, but they must take action before the new rate is introduced.
‘The government wants to crack down on businesses who misuse the scheme, but we want to ensure that business owners who play by the rules do not get caught out by the changes.’
Businesses with total income of less than £150,000 are eligible to use the scheme, which applies a set percentage to their turnover, rather having to record the VAT on each sale and purchase they make.
It applies to businesses that spend less than two per cent of their VAT-inclusive turnover or £1,000 a year on goods.