Changes to the VAT Flat Rate Scheme

In the Autumn Statement on 23 November 2016, the Chancellor of the Exchequer announced it proposed to introduce a new 16.5% VAT flat rate for ‘labour-only’ businesses, such as contractors with limited costs. This will take effect from 1 April 2017. 

This likely to adversely affect businesses in all of the trade sectors as 16.5% of the gross turnover is equivalent to 19.8% of the net leaving almost no credit for VAT incurred on purchases. 

Due to the way the Flat Rate scheme rates are set (e.g. 14% for business consultants), if you’re caught by the new rules you’ll end up paying more VAT (so a business consultant would pay an extra 2.5% of VAT).