Changes to Flat Rate VAT scheme

Following last years Autumn Statement, the government have issued their draft legislation detailing the changes to the Flat Rate Scheme (FRS). These will come into effect on 1 April 2017.

If you are using the Flat Rate scheme for calculating your VAT it’s really important that you read the following information.  We will also be contacting you directly if our records indicate that you may be affected by these significant changes.

If your business is classed as a “Low or Limited cost trade”, which will probably catch any consultancy based businesses, the flat rate will increase to 16% from 1 April.

So for example:
If your sales are £5,000 the VAT is £1,000, total £6,000 x 16.5% = £990 VAT payable. So HMRC let you keep £10.

Compare to the 14% rate and the VAT payable would have been £840, allowing you to keep £160.

Please click here for our full factsheet on this important subject and do get in touch with us if you are affected.


VAT Rules Changing for Prompt Payment Discounts

In last year’s Finance Act it was announced that the VAT rules for dealing with prompt payment (or early settlement) discounts would be changing from 1 April 2015. HMRC have now issued brief 49/2014 setting out guidance for businesses affected by the change, many of whom may need to amend their invoicing procedures.

From 1 April 2015, output VAT will need to be calculated on the consideration actually received from the customer instead of the current rules, where VAT is calculated on the value of the supply and net of any discount for prompt payment.

Let’s assume, for example, that you supply goods to the value of £100 but allow the customer a 2.5% discount if they pay within 30 days. Under the current rules VAT is charged on the discounted price of £97.50 not £100, whether or not the customer pays within 30 days.

From 1 April 2015, suppliers issuing a VAT invoice will enter the invoice into their accounts, and record the VAT on the full price. If offering a prompt payment discount (PPD), suppliers must show the rate of the discount offered on their invoice. The supplier will not know if the discount has been taken up until they are paid in accordance with the terms of the PPD offer, or that the time limit for the PPD expires. The supplier will then have two options to deal with the discount:-

  1. they may issue a credit note to evidence the reduction in consideration or,
  2. alternatively, if they do not wish to issue a credit note, they will need to adjust  the output tax in their VAT return  and the invoice must contain the following information:
  3. the terms of the PPD (in particular the time by which the discounted price must be made).
  4. a statement that the customer can only recover as input tax the VAT paid to the supplier.

Please contact LIRIC if you wish to discuss the effect of these changes on your invoicing and accounting procedures.


VAT ‘mini one stop shop’ (MOSS)

Are you one of the 60% of SME’s (Small Medium Enterprises) unaware of VAT changes coming from the start of next year? For businesses that provide ‘digital services’ to consumers that include downloaded apps, music, games and e-books, VAT will no longer be charged based on where the company is located, but the EU country where the customer is based.
Digital services include telecoms, satellite TV, the downloading of computer software, music, books and manuals. From 01 January 2015, the UK trader will need to identify where in the EU their non-business customer is located and apply the VAT rate for that country, instead of UK VAT. The customer’s location will be where the consumer is established, has their permanent address or usually resides.

The VAT Mini One Stop Shop (MOSS) has been introduced to save these businesses from having to register for VAT in every EU Member State in which they supply their services.

 Businesses can now register for the online service from 20 October 2014. Registration for the service has to be carried out by the business itself. Once registered, you can authorise us as your agent to act on your behalf for VAT MOSS. Please contact us if you think you may be affected by these new rules.