End of the Flat Rate Scheme for VAT? Not quite…

Businesses with few VAT expenses have been able to pay HMRC a reduced output liability percentage on their Gross turnover called the flat rate scheme. This is because some businesses have very few expenses and having to pay 20% output VAT without the Input Vat to offset would appear unfair.

For example a consultancy firm may use a flat rate of 12%. They would charge the customers the full standard rate of 20% yet only pay 12% of the gross turnover in VAT to HMRC.

There were a few minor restrictions but pretty much anyone could use the flat rate scheme with an annual turnover of £150,000 or less. However HMRC have again published a consultation in December 2016 announcing plans to introduce a further restriction called “limited cost trader”.

Limited cost traders can still use the flat rate scheme, but their percentage will be 16.5%. A limited cost trader is defined as one that spends less than 2% of its sales on goods (not services) in an accounting period. It is the fact services don’t count that means many business will fall into the limited cost trader trap.

In summary if you fall into the definition of a “limited cost trader” your company or business may be better off coming out of the FRS altogether. At least using the standard scheme you can offset any services such as accountancy fees against your output vat albeit at 20% again. Each clients situation will be different. If you are concerned this will affect your business please contact us and we can provide advice and assistance in working out your status.

If we do the book keeping for your business already we will be touch when completing your VAT returns.

A note should be added that the consultation ended in late December 2016. We are yet to receive HMRC’s final rules regarding this. We will of course keep you updated via this blog,  our website and clients we provide book keeping services for we shall be in touch very soon.

UPDATE: As this post described what was proposed – all of this came in to force on the 1st April 2017. Therefore is you are worried about anything here please to get in touch.

Any questions please feel free to get in touch at 01480 300945.

Richard at TG.


MTD. What we know now.

Over the last couple of years we have been hearing little bits of information provided by HMRC regarding Making tax digital. The principle remains the same with the quarterly reporting of company financial information however the timescale has been altered slightly.

Those companies & businesses with a turnover greater than the VAT threshold (£85,000) will need to report quarterly from 1st April 2019. The reports must be submitted within 1 month. (Unlike with VAT when entities have 1 month and 7 days)

Those businesses with a turnover below this and landlords with rents less than the £85,000 figure will at present start reporting quarterly from 1st April 2020 at the earliest. Please note HMRC have not confirmed the deadline they have only said that the need to file quarterly will be 1st April 2020 at the earliest. This could still be extended.

To help limit the work required we are starting to introduce clients to cloud based bookkeeping software solutions. This type of software has many time saving solutions for both clients and accountants. Quarterly reporting will inevitably increase the work required by Accountants or bookkeepers however by streamlining the process as much as we can the delivery of MTD should not be too great a burden on businesses.

Software – at Tacconi Green & Co we have become certified many of the MTD software products, we have attended training courses so we are up to date to meet clients needs and support those that wish to report in house. Our present software recommendations are Quickbooks online, Xero & Sage one. All of these are cloud based solutions and all have similar features. No one software provider will fit all our clients so do contact us to discuss your needs before making the decision. We also get partner rates with the providers which are often better than individuals will get going directly to the software companies.

If you wish to discuss this further please do give us a call on 01480 300945 and your partner will be able to talk you through the process. It may seem like this could be a large increase in admin but with the right advice and software to help we can make sure the process is a simple and painless as possible.

Updates to follow when we get them.


Richard at TG.