From April 2017, a new VAT flat rate of 16.5% was introduced by HMRC to Limited Cost Traders. The VAT bill of some labour only contractors will increase.
Whose VAT inclusive expenditure on goods is either:
Expenditure on goods includes:
Expenditure on goods DOES NOT include:
Yes, if your main expenditure is a labour or service instead of goods. Typical Limited Cost Traders include solicitors, consultants, IT contractors, hairdressers and cleaners.
For example, if your annual VAT inclusive turnover is £120,000:
Before the change: VAT due to HMRC = £120,000 x 14.5% = £17,400
After the change: VAT due to HMRC = £120,000 x 16.5% = £19,800
Therefore, if your business can reclaim £200 on business expenses (including service fees), you may be better off if you switch to the standard rate VAT scheme.
De-register for VAT, if your turnover is less than £85,000 (2017/18).
Switch to standard rate VAT scheme, if the earlier example applies to you. Contact us now to have an assessment.
The above information and calculations are for illustrative purposes only. No liability is accepted by O’Brien S & Co Ltd for any actions or losses from investment in reliance on the information and calculations. Consult a qualified professional financial advisor before making any financial decisions. O’Brien S & Co Ltd holds the copyrights in all materials on the website. All rights reserved.