st April 2017 and could mean an increase in VAT payable for businesses that are affected. Businesses will need to determine whether they meet the definition of a limited cost trader and establish their applicable VAT rate based on their trade sector. What Is a Limited Cost Trader? A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

• Less than 2% of their VAT inclusive turnover in a prescribed accounting period
• Greater than 2% of their inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year the figure is the relevant proportion of £1,000)

Goods, for the purposes of this measure, must be for the exclusive purpose of the 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, for example a taxi business, and uses its own or a leased vehicle to carry out those services)

These exclusions are to prevent traders buying either low value everyday items or one-off purchases in order to inflate their costs beyond 2%. Examples Goods such as printer ink and stationery that are used for both office and your home would be excluded as they are not exclusively for the use of the business. It would also exclude goods acquired with the intention of giving them away or donating them to a third party. Who Will It Affect? The most likely affected sectors will be those that provide services and are labour intensive but do not incur significant costs for goods. This is likely to include solicitors, consultants, hairdressers and beauticians. Anti-forestalling legislation was published on 23^rd November 2016 to prevent any trader from continuing to use a lower flat rate by issuing an invoice or receiving payment before 1^st April 2017 for services supplied after that date. HMRC have said that they will offer an easy-to-use online tool to businesses to help them determine whether they should use the new flat rate. This is not currently available, however, HMRC have committed to contacting all affected businesses before April 2017. As Chartered Accountants S4B are committed to keeping our clients up to date with all the latest legislation. If you would like to contact one of the S4B team send an email to [email protected] or call us on 01628 623444.