Do you run a business in the UK? From April new VAT rate is introduced for all on Flat Rate Scheme!

On 1st April rules around the VAT calculations in the UK has changed, the new law will have particularly negative impact on microbusiness. All those companies that were using the FRS (Flat Rate Scheme) might have to pay a lot more in VAT than they have until now.

Can I pay lower VAT in the UK? Flat Rate Scheme – what is it?

FRS (Flat Rates Scheme) is simplified way of calculating VAT bill for small businesses. It allowed VAT registered companies to save thousands of pounds a year, but now to reduce possible misuse and decrease bureaucracy, a new category has been introduced for all companies.

What are the changes for the users of the Flat Rate Scheme?

From 1st April 2017, each business will have to verify if they are classed as Limited Cost Trader, the new category signed into law. Those that fall under the new rules will have to pay higher VAT Flat Rate at 16.5%

Changes of the VAT rules in the UK. Who is affected?

The change will affect many directors of limited companies that do not have employees e.g.

  • HGV Drivers, Van Drivers,
  • Engineers
  • Bookkeepers, Accountants,
  • Nurses
  • Freelancers

and all others that were using the convenient Flat Rate Scheme

New category Limited Cost Trader – keeping the FRS

New category Limited Cost Trader has been introduced by the HMRC and covers all business registered for the VAT in UK (e.g. drivers, accountants and book-keepers in West Midlands and across entire UK) with expenses (inclusive of VAT) on goods lower than 2% of their VAT inclusive turnover in a prescribed accounting period (but at the same time not less than £1000 a year).

What does it mean for the users of Flat Rate Scheme?

The changes are profound, average business owner with a turnover around £35000 gross might pay even £3000 more in VAT. New rule allows, however, for some interpretation to reduce the amount of tax paid.

How to pay less VAT?

It is important to say that expenses claimed on goods (the word ‘goods’ is important here because any expenses on services are immediately excluded) do not cover all expenses.

Non-claimable – expenses on goods that are excluded,

  • capital expenses (e.g. disallowed to buy a car for business to remaining on the lower Flat Rate),
  • petrol costs,
  • food or subsistence (regardless if they are for the business owner or employees),
  • goods for resale, if the sale is not the main business activity,
  • fees for accountancy or booking services,
  • software purchased online
  • rent for the business premises, etc.

New VAT rules in the UK – avoid the consequences.

It does not matter if your service providing business operates in Birmingham, Wolverhampton, is more regional and covers West Midlands or nationwide, there are options to reduce the negative impact of the recent VAT changes. These options depend on your financial situation and include:

  • Leave the VAT scheme all together (if you are currently enrolled on the voluntary basis),
  • Leave the Flat Rate Scheme and join standard VAT scheme
  • Appropriately increase expenses on goods (the expenses have to be directly linked to the main business activity, e.g. for HGV drivers they cannot be receipts for electronic equipment) and remain at the current Flat Rate.

When deciding to stay on FRS it is important to use professional accountancy advice.

What can we do for your business?

  • Perform accountancy analytics
  • Research your operations to offer tailored solutions
  • Balance the expenses to remain on the current FRS rate

Easy solution

All companies have stationary expenses, so, if the company with turnover of £50,000 spends on those £1000 gross (works out as £83.34 a month or £250 a quarter) it can then remain on the current Flat Rate.

Iwona Accountancy Services Ltd – Accountancy in the UK. Accountancy in Birmingham

Contact us

Drop in to our offices:

  • IAS Birmingham, 51 Tyburn Rd., Birmingham, B24 8NP, no: 0121 4481320, ask for: Marta Poplawska; email:
  • IAS Wolverhampton, Regent House, Bath Avenue, Wolverhapton, WV1 4EG, no: 01902276420, ask for:Emilia Kolodziejska or Edyta Szymanska; email:

We know how valuable your time and money is, trust us with them.

We will deal with all your admin:

  • Accountancy
  • All tax returns matters
  • Representing you in dealings with HMRC

Entrusting our experienced team to service your accountancy needs will result in savings on your tax bills, long term profit increase and success of your business!