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Autumn Statement: Important Change to VAT Rulings

November 2016

A very important change to VAT rulings were announced in the Autumn Statement, though it seems a great deal of media sources have skipped over this announcement. Despite being overshadowed by other announcements, this is something you really ought to be aware of if these new rulings are to affect you.

In the recent Autumn statement by the Chancellor of the Exchequer, Philip Hammond, some very severe restrictions on the use of the VAT accounting flat rate scheme were revealed.

Taking effect from 1st April 2017, the government will introduce a mandatory rate of 16.5% VAT for businesses collectively grouped as ‘limited cost traders’. A limited cost trader is defined as one that spends less than 2% of its sales on goods (not services) in an accounting period.

When working out the amount spent on goods, it cannot include purchases of:

A business will also be defined as a limited cost trader if it spends less than £1,000 a year, even if this is more than 2% of the businesses turnover on goods.

As a result, many businesses will have to relinquish the lower flat rate percentage originally adopted, and thus these restrictions will make the scheme less economically attractive for many.

If you are affected by these proposed changes, call our VAT consultant David Fiddy to discuss the implications and alternatives that are available to you.

One thought on “Autumn Statement: Important Change to VAT Rulings

  1. Ellie Gillard says:

    Thanks for posting about this, it does feel like the media has glossed over this . I have actually written to my MP about this as far from being a form of tax avoidance, it actually penalises service based freelancers unfairly such as designers, musicians, actors and writers and indeed photographers. As a photographer who currently sells items such as prints to private clients, I would be unaffected but commercial photographers who purely provide a service to clients would again be penalised when doing nothing wrong.

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