Autumn Statement: A big change for many small businesses using the flat rate scheme

25th November 2016

It appears many small businesses are going to suffer following the announcement in the Autumn Statement that there is to be a change to the flat rate scheme for businesses with a “low cost”. 

Although the specific guidance has not yet been issued, it is clear the changes proposed, which come into effect from 1 April 2017, will be extremely lucrative for HM Revenue & Customs. 

It has been announced that there will be a new flat rate scheme percentage of 16.5% for businesses falling within a category called “limited cost traders”, which has been defined as a business that spends less than 2% of its sales on goods in an accounting period excluding capital items, motor expenses and food & drink. 

If you consider a management consultant who invoices £100,000 + VAT per annum, under the current rules they pay 14% of their total income including VAT to HM Revenue & Customs, being £16,800. Assuming they fall into the category of a “limited cost trader”, under the new rules they will pay HM Revenue & Customs £19,800. Therefore the business is £3,000 per annum worse off under the flat rate scheme. 

Consideration will need to be taken as to whether the flat rate scheme will still be appropriate once the changes come into effect. There are a number of advantages to remaining in the scheme (such as time / cost savings in preparing quarterly returns and reduced risk of mistakes), but financial gain is not likely to be one of these for much longer. 

Luke Thomas | Brighton Accountant | Plus Accounting

If you have any matters on this subject, please do not hesitate to contact Luke Thomas on 01273 701200 



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