Autumn Statement 2016 VAT

VAT & Other Indirect Tax

Key points:

  •   New Flat Rate Scheme rules could take away the benefit of using the scheme for many service businesses

The Chancellor has announced new rules today targeting the supposed misuse of the flat rate scheme.

From the 1 April 2017, any user of the flat rate scheme who’s considered to be a ‘limited cost trader’ will have a new rate of 16.5% applied to their gross turnover. This could take away the benefit for many users.

A limited cost trader is defined by HMRC as one whose VAT inclusive expenditure on goods is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • Greater than 2% of their VAT inclusive turnover but less than £1,000 per annum.

Goods for this purpose must be used exclusively for the purpose of business but exclude the following items:

  • Capital expenditure
  • Food or drink for consumption by the flat rate business or its employees
  • Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services).

Although set out as an anti-avoidance measure, the introduction of these rules appear to be an attack on service-based businesses currently using the flat rate scheme. It would appear unlikely that many would incur expenditure of more than £1,000 per year on goods alone.

It may be the case that some businesses that are currently VAT registered under the flat rate scheme would be forced to switch back to standard VAT accounting.


Insurance Premium Tax

Key points:

  •   Insurance Premium Taxes set to rise to 12%

Also announced today is an increase in the standard rate of Insurance Premium Tax (IPT) from 10% to 12% from June 2017.

Up until 13 November 2015, the standard IPT rate was set at 6% so today’s announcement marks a doubling of IPT rates in less than two years.  Insurance companies are likely to pass on the increase to their customers which will result in higher insurance premiums for all.


Tampon Tax

Key points:

  •  Income generated from Tampon Tax to go towards women’s charities

Philip Hammond has announced today that £3 million of income generated from the 5% VAT applied to sanitary products will be allocated to Comic Relief for distribution to a range of women’s charities.


VAT Fraud

Key points:

  •   New penalty for participation in VAT fraud

Following the announcement in this year’s budget, it has been confirmed that a ‘new and more effective’ penalty will be applied for participation in VAT fraud. 

This will be applied to businesses and company officers who know or should have known that their transactions were connected with VAT fraud. The fixed rate penalty will be 30%.


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