Flat Rate Scheme (FRS)
I have looked at the changes to the FRS and the impact of these here
This is a timely reminder for all businesses using the FRS as changes to the scheme come into effect tomorrow: 1 April 2017.
The first matter to consider is if your business is a “limited cost trader”. This may be done on the HMRC website here
Relevant costs, in this instance, only include goods (please see below).
If not a limited cost trader no further action is required.
If a business qualifies as a limited cost trader (which is likely to include, but not limited to, labour-intensive businesses where very little is spent on goods) there are the following choices.
Options
- Continue on the FRS but using the increased percentage of 16.5% (which is effectively equal to the 20% rate).
- Leave the FRS and use conventional VAT accounting
- Deregister for VAT if a business’ turnover is below that of the deregistration limit – which will be £83,000 pa from tomorrow.
Relevant Goods
It should be noted that the goods referred to above mean goods that are used exclusively for the purposes of a business, but do not include:
- vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
- food or drink for you or your staff
- capital expenditure goods of any value
- goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
- goods that you intend to re-sell or hire out unless selling or hiring is your main business activity
- any services
As may seen, the definition is very restrictive. Failure to recognise this change is likely to result in penalties and interest being levied.
If you would like any advice on this matter, please contact us as soon as possible considering the timing of the implementation.