Update: VAT Flat Rate Catch for Freelancers

Last Updated on 7 April 2017

Well there’s not much more  in today’s “clarification” from HMRC about how flat rate VAT will actually work for the newly conceptualised ‘limited cost businesses’.

One of the more interesting aspects is that HMRC reckon the move to the punitive rate of 16.5% will affect more than a quarter of all businesses using the VAT flat rate scheme. That’s about 120,000 – a lot of freelancers and consultants.

And they think it will bring in £690m over six years. Which is why they’re doing it of course.

They keep on promising a ‘simple tool’ to help a business work out whether they’ll be forced to use the 16.5% rate from April. I can’t see a date for this tool but I’ll keep an eye out.

If you are interested, here are the documents released by HMRC today. The technical note includes a couple of examples (scroll down) which clarify slightly what they mean by ‘goods’.  The ‘explanatory memorandum’ is well worth a read if you’re interested in the detailed financial justification. Though frankly life’s a bit short for this stuff.

https://www.gov.uk/government/publications/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note

https://www.gov.uk/government/publications/draft-legislation-vat-tackling-aggressive-abuse-of-the-flat-rate-scheme

I’m rushing this post out between training engagements. I’ll write a more considered post when I’ve been able to get my head around the practicalities.

Posted on 05 December 2016