Reply To: Question about flat rate VAT and previous VAT problems

Forum Categories VAT REGISTRATION Question about flat rate VAT and previous VAT problems Reply To: Question about flat rate VAT and previous VAT problems


Apologies late reply.

Answer to Question 1:

You need to select which category is the closest match to your business activities and if you have more than one type of business activity, the flat rate category should reflect the one that generates the highest level of income.
It is very important that you make a note in your files as to the reasons why you have chosen the category – this is necessary in case you ever need to show HMRC why you decided the category you had chosen was the best fit.

HMRC’s VAT Notice 733: Flat Rate Scheme for small businesses covers the issue of choosing the correct VAT sector and section 4.2 says: “HMRC will not change your choice of sector retrospectively as long as your choice was reasonable. It will be sensible to keep a record of why you chose your sector in case you need to show HMRC that your choice was reasonable.”

On 23rd November 2016 HMRC announced changes to the flat rate scheme from April 2017 with regards to a new flat rate scheme category, the ‘limited cost trader’ – we have written an article below which should be read in conjunction with this article: HMRC says that a limited cost trader is a business that buys only a few goods. More specifically, a limited cost trader’s spend on goods, including VAT, in a quarter is: less than 2% of its VAT-inclusive sales for that quarter,or more than 2% of its VAT-inclusive sales for that quarter, but less than £250. If it turns out that you are a limited cost trader, you need to apply the 16.5% limited cost trader percentage to your VAT-inclusive sales for that quarter when you’re working out how much to pay HMRC – don’t use the usual rate for your trade.

Answer to Question 2: 
It is important to keep proper records and filing in place. If you are unable to find the funds to bring your account up to date immediately, one option is to speak to HMRC about the possibily of a Time to Pay (TTP) arrangement. This lets a company settle its tax arrears through a series of monthly repayments rather than having to pay the whole amount at once.

if you need assistance with having an accountant maintaining your books and filing returns, please let me know.