The start date for Making Tax Digital (MTD) for VAT is fast approaching. If you are a VAT-registered business with turnover in excess of the VAT registration threshold of £85,000, you will need to comply with the requirements of MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2019. If you are VAT registered but your VATable turnover is below £85,000, you can choose whether to join in, but if you do there is no going back and once in MTD for VAT you will need to stay within MTD for VAT as long as you remain VAT registered.
Limited cost traders
The VAT flat rate scheme aims to simplify the tax affairs of smaller businesses by allowing them to work out the VAT that they pay over to HMRC by applying a flat rate percentage to their VAT-inclusive turnover, rather than working out the difference between the VAT that they have charged and the VAT that they have incurred.
Prior to 1 April 2017 the flat rate percentage depended only on the sector in which the business operated. From 1 April onwards it is also necessary to work out whether the business is a ‘limited cost trader’. This is a business that spends less than 2% of its VAT inclusive turnover on relevant goods or one that spends more than 2% of its turnover but less than £1,000 per year on such goods.
For periods of less than one year, the £1,000 figure is proportionately reduced and thus equates to £250 a quarter.
Relevant goods exclude capital expenditure, food or drink for consumption by the business or its employees, vehicles, vehicle parts and fuel (unless the business operates in the transport sector), goods for hire or resale unless that is the business’s main business activity, goods for disposal, such as promotional items, and all services.
A business that meets the definition of a limited cost trader must use a VAT flat rate percentage of 16.5% rather than that for its business sector.
If you use the VAT flat rate scheme, it is advisable to discuss with your tax adviser whether these changes affect you. This is likely to be the case if you supply labour-only services. Your adviser will be able to discuss whether it remains beneficial to stay within the scheme. Businesses making taxable supplies in excess of the VAT registration threshold, set at £85,000 from 1 April 2017, must be registered for VAT.
The standard rate of VAT remains at 20% and the reduced rate at 5%
With effect from 1 April 2014 thresholds are:-
Registration threshold £81,000
Deregistration threshold £79,000
From 01.04.2012 £
Registration threshold 77,000
Deregistration threshold 75,000
Supplies of self-storage will be standard rated (at present they are exempt unless the supplier has opted to tax the relevant building)
This is mainly aimed at businesses which offer lock-up units in purpose-built or converted buildings but it will also apply to any defined space which is let for the storage of goods (i.e a spare room or freestanding shipping container).
The above does NOT apply to charities when rented for non business use
Chair rentals in salons are always standard rated.
The sale of a holiday caravan will be standard rate, even if it is too large to be towed on the road lawfully. Zero rating will be restricted to caravans conforming to BS 3632 – the standard for caravans suitable for continuous year round occupation.
All food (except bread) will be standard rated (as a supply in the course of catering) if it is warmer than the ambient air temperature at the time it is sold- even if it is simply coooling down after having been baked or cooked, or is being kept warm to comply with food safety legislation. This will apply, for example, to pies, pasties sold in a bakers shop, or rotisserie chickens in a supermarket.
The supply of cold food will be standard rated as a supply in the course of catering if, it is intended for consumption in an area that is set aside for the consumption of food, even if that area is shared with other traders.
All sports nutrition drinks and powders for making such drinks will also be standard rated. This does not apply to meal replacement drinks for slimmers and invalids.
Dont forget that as from 01.04.2012 ALL traders must file their VAT returns online, regardless of turnover.
All VAT registered traders will need to commence preparation for the mandatory online filing of VAT returns from 1
April 2012. At present traders registered before April 2010 with a VAT -exclusive annual turnover of less than £100,000 are exempt however the mandatory online filing of VAT has been extended to all traders.