Author Archives: Bowyers Accountants

VAT Flat rate scheme – “Limited Cost Trader”

It was announced at the Autumn Statement 2016 that a new 16.5% rate will apply from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, using the Flat Rate Scheme. Businesses using the scheme, or considering joining the scheme, will need to decide if they are a ‘limited cost trader’.

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 £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

There will be exclusions from the calculation to prevent attempts to inflate costs above 2%.

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
● capital expenditure
● food or drink for consumption by the flat rate business or its employees
● vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.

The government has issued anti-forestalling legislation to provisions which are designed to prevent any business defined as a limited cost trader from continuing to use a lower flat rate beyond 1 April 2017. These provisions will affect a business that supplies a service on or after 1 April 2017 but either issues an invoice or receives a payment for that supply before 1 April 2017.

If you have any specific queries in this matter we will of course be pleased to assist you ….

Dividend taxation – all change from April 2016

The tax regime for dividends will change for 2016. This sees the abolition of the dividend tax credit, a dividend tax-free allowance and tax rates for dividend receipts.

Dividend tax free allowance £5,000 – then tax is payable :

All Basic rate taxpayers 7.5%
Higher rate taxpayers 32.5%
Additional rate taxpayers 38.1%

Clients should contact us now about this issue to discuss potential increases in income tax payable.

Workplace Pensions

New rules on Workplace Pensions

We have produced a guide to the new workplace pensions rules being phased in over the next two years. Click to download and keep AutoEnrolment Pension Reform is Here (1)