New VAT catch for freelancers?
Last Updated on 7 April 2017
The Chancellor’s Autumn Statements and Budget announcements seem to follow a set pattern.
- Leak goodies (e.g. investment in broadband) to the press in advance
- Friendly MPs ask questions during PMQs highlighting the goodies (e.g. yesterday’s broadband investment or road repairs)
- Broad brush and headline-friendly stuff goes in the televised speech
- Much more detail comes out in the Treasury papers
- People discover the detail and go ‘hang on a minute’
- Clarification
- (Optional stage) Tinkering
- (Also optional) U-turn because the implications are non-sensical or politically damaging
We’re already at stage 5 with one bit of small print after yesterday’s Autumn Statement. The Treasury paperwork says:
“VAT Flat Rate Scheme – The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses.”
Now, as people know from our courses, the Flat Rate Scheme is designed to allow small businesses to be VAT registered, but to remove most of the admin when they recoup the VAT on things they buy for the business. The business owner applies a flat rate based on the business sector they work in.
The scheme is important for the smallest of businesses, because they don’t have the staff or the time to do lots of VAT admin. Many production freelancers I work with are in the Flat Rate Scheme and apply a rate of 13%. (You can see the full list here.)
If they are deemed ‘labour-only’ with ‘limited costs’ they might have to apply a rate of 16.5% which is much less attractive.
Last night HMRC published a bit of clarification, which is worth a read, and introduces us to two new concepts:
- “limited cost trader”
- low expenditure on “goods, not including capital or food and drink”
Still with me?
Will production freelancers be deemed as “limited cost traders”? HMRC have promised some more clarification on 5th December. That’s stage 6 on my chart.
Will we have a stage 7 or 8, I wonder?
Either way I suspect we might have to update our training materials in the new year.
Posted on 24 November 2016
