The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Curently businesses determine which flat rate percentage to use by reference to their trade sector. From April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.
Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses-for example, those who purchase no goods, or who make significant purchases-this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5%.
Businesses using the FRS will be expected to review, for each accounting period, that they use the appropriate flat rate percentage.