Changes to the Flat Rate Scheme
From 1 April 2017 a flat rate of 16.5% will apply to all "limited cost traders" which will be businesses mainly supplying services.
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
- less than 2% of their VAT inclusive turnover in a prescribed accounting period
- greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
This is an attempt to curb certain practices which involve the use of the FRS by employment businesses managing the affairs of self-employed contractors. The practice leads to a net tax loss for the exchequer whilst generating income for the employment business.
For full details click here
Disclosure of Schemes
Following the recent HMRC consultation exercise, it is expected that there will be radical changes to the current indirect tax disclosure regime, presumably to bring VAT in line with DOTAS. It is possible that even the most minor VAT mitigation initiatives could be brought into the scope of the regime increasing compliance costs to businesses.
Full details of the responses to the Consultation can be found here
Pre-registration VAT - RCB 16
Revenue and Customs Brief 16/16 restates HMRC's policy in respect of goods & services used prior to registration for VAT.
There has been some confusion, not least from officers attempting to apply the rules for fixed assets used both before and after the effective date of registration (EDR). In short, VAT incurred on fixed assets purchased up to 4 years in advance of the EDR is wholly recoverable (partiallly exempt businesses excepted), provided the assets are still in use by the business.
HMRC's original guidance on this matter suggested perhaps the correct treatment was to apportion VAT recovery based on use prior to the EDR.
HMRC has invited claims from busineses which may have underclaimed VAT incurred on pre-registration goods and services.
Full details here
HMRC is still enthusiastic about raising penalties and it is definitely worthwhile challenging them even to reduce the percentages. OMNIS has long experience of dealing with assessments and penalties. If we cannot assist in mitigating or removing a penalty we won't charge!
If you need to discuss any of the above items please contact Nick or Alan.