Anybody here registered for the Flat Rate VAT Scheme? I was, but have just deregistered after receiving a letter from HMRC explaining the changes, meant to tackle abuse of the system. A new term, Limited Cost Traders, applies to those who have low overheads, and applies to many of the self employed who primarily provide labour. Can't help thinking it's a bit of an own goal by the tax man, as I can see many small businesses deregistering if their turnover is less than the current threshold of £81k. For example, a contractor charging a company 80k for their services would add VAT at 20%. Depending on their trade sector, they pay a flat rate percentage of the total invoice (Inc VAT), and the difference between the VAT charged and flat rate VAT paid to HMRC is profit, liable for Corporation Tax at 20%. Prior to April 2017, 80k would incur VAT of £16k, the flat rate paid to HMRC would be £12k if the flat rate percentage was 12.5% for their sector. The difference would be £4k, or £3,200 after corporation tax.
Under the new changes, a Limited Cost Trader must use a flat rate of 16.5%, so the VAT paid to HMRC is £15,840, leaving the trader £160, or £128 after corporation tax. I can't see any small business with a turnover of £80k or less wanting to collect VAT for HMRC and file quarterly VAT returns for £128 a year.
I can see a big increase in deregistration for VAT, as it is voluntary if your turnover is below £81, and fewer new traders will register. Big business will benefit as less of their subcontractors will be charging them VAT, and the tax man will subsequently be receiving fewer VAT payments from small business, and less in corporation tax. As I said earlier, a big own goal for the tax man.
I expect the accountants on here will have a better handle on this, but I can't see any benefit in changing the current scheme.