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The VAT flat rate scheme very popular with small businesses is subject to change from 1 April 2017

There are 54 flat rate percentages applicable to various trades and professions ranging from 4% to 14.5% (depending on the business sector).

Businesses that use the scheme, apply to their gross turnover to work out how much VAT to pay to HMRC.

Another rate of 16.5% is introduced from 1 April 2017 for businesses that incur relatively low costs on goods.

This means businesses that have VAT inclusive expenditure on goods that is either less than 2% of their VAT inclusive turnover or is less than £250 per quarter (£1,000 per annum) will need to use the new 16.5% rate or cease to use the scheme.

A letter to HMRC advising them of this is all that is required. Increased VAT is likely to result for many previous users on the scheme and can be a stealth tax on many.