You need to be aware of this if you are on the flat rate VAT scheme, as it will affect you. Please check out the video and we can then have a chat about what you need/want to do .
The rules for the flat rate VAT scheme have changed recently. From April 2017, you can still be on the flat rate scheme, but if you are something called a limited cost trader, then you may not be able to claim your normal VAT rate of, say, 14.5% or 12.5%. What is a limited cost trader? If you are spending less than £1000 or 2% of your turnover on goods, then you are called a limited cost trader. What are those goods? Well there’s something called relevant goods. These are things that you would use in your business to help you run your business. What it is not, is services, so your accountant’s bill is a service and not a relevant good; the gas & electricity you might buy; consulting fees; the printing you’ve just done; people to go out and deliver leaflets for you; advertising & marketing spend. These are all services. They are not goods.
A typical good for you might be books, audio books, your music scores, note pads. They cannot be a downloadable book, CD, dvd, music score and it is actually something physical, then it is a relevant good. Great examples of goods to use in your business are things like stationary, printer ink/toner, micro cards/USB sticks.
However, there is a little caveat. If you buy goods in order to sell those goods on, that’s secondary goods trading and it’s not permitted under the definition for relevant goods unless your business is to do with buying and selling these items. It actually is items you use in your business. If you’ve gone off and you’ve bought some materials to run a training course, let’s say, then those materials you’re using in that training course would be an allowable item.
You’ve probably now established that you might be a limited cost trader. Now that £1000 or 2% of your turnover is for the whole year. Your VAT return is done on a quarterly basis, so you divide that £1000 by four and providing you go over that £250 per quarter, then you can apply your normal VAT rate margin scheme percentage. If your turnover is over £12,500 for the quarter, then the relevant goods spend must be at least 2% of the quarters turnover. If for the quarter you have not spent the required amount on relevant goods, you have to apply the 16.5%. Therefore, there’s virtually no saving to make on the flat rate scheme. It really is not worth it.
If you are a limited cost trader, you’re not able to reach that threshold of £1000 a year or 2% of your turnover, whichever is greater, then seriously consider coming off the flat rate scheme and going onto a normal accrual accounting scheme at the full 20%. You might find you spend more in things like services, printing, marketing, advertising, accountant’s fees, external people that might deliver because you’re subcontracting like deps, you might find that by the time you’ve added up all the input VAT you’re going to claim more back than what you’d have to pay over.
HMRC have put out a little tool to see if you are a limited cost trader and that can be found here >> https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period <<
This comes into play from the 1st April 2017, so if your VAT period straddles the date, then you need to work out the levels post 1st April to see if you are a limited cost trader and if not, then apply your normal flat rate percentage. If you are a limited cost trader post 1st April, then you effectively run two VAT returns (pre and post) and add the numbers together. Don’t worry – this is the worst case (unless of course they change the rules again.
If you decide to come off the flat rate scheme, you need to notify HMRC of your decision either by email to [email protected] or you could write to them here:
HM Revenue & Customs
VAT Registration Services
77 Victoria Street
I do have a facebook group set up specifically for musicians, singers, dancers, actors, voiceovers and others in the performing starts were weekly posts will be put that are geared to accounts and tax. Also it’s a place to ask general questions on UK tax & accounts that affect our industry. Please request to join, and don’t be worried about asking what you need to know. The link is here >>> https://www.facebook.com/groups/PerformersTax
Have a chat to your accountant. I’m sure they know the rules. If they’re not too sure, then quote them VAT notice 733, section 4.5 and 4.6, and they should be able to advise you what to do. Alternatively, you could contact us. Have a great day.