Budget 2017 – VAT

VAT Flat rate scheme changes

As announced last year, businesses on the flat rate scheme which have very low purchases of goods will have to use a flat rate percentage of 16.5%. The higher flat rate percentage will have to be used on every return where either of the following two tests are failed:

  • Purchases of goods are less than 2% of flat rate turnover, or
  • Purchases of goods are more than 2% of flat rate turnover but less than £1,000 pa

“Goods” for this purpose excludes capital expenditure, food or drink to be consumed by the business or its employees, vehicle parts or fuel unless you are operating in the transport sector and even goods for sale if selling goods isn’t your main business activity.  The new rules come into force from 1 April 2017.

Consultation on VAT avoidance in the construction sector

The government is to undertake a consultation on VAT fraud in the construction sector to counter the perceived problem of missing trader fraud, where VAT collected from customers is not paid over to HMRC.  One proposal which may be explored is passing the responsibility for accounting for VAT from the supplier of construction services (eg sub-contractor) to the recipient (ie main contractor).

VAT registration and deregistration threshold

The VAT registration threshold will increase from £83,000 to £85,000, and the deregistration threshold from £81,000 to £83,000. Both increases take effect from 1 April 2017.

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Nov 25

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