Following the reduction of the VAT rate from 17.5% to 15%, HM Revenue and Customs has issued the following guidance relating to the changes to the flat rate VAT scheme:
8.4 Flat rate scheme
Will the rate change affect my flat rate percentage?
Yes. The table of flat rates has been changed to reflect the new rate of VAT. The new table is set out in Annex E. You should make sure you use the new rate for your sector from 1 December 2008.
My flat rate has not been reduced. Why not?
The flat rate percentages are calculated by reference to the VAT actually paid in each sector and, following the change to the standard rate of VAT, most sectors will find that their flat rates are reduced. However, there are a small number of sectors that, with VAT at 17.5 per cent, would have needed an increase in order to reflect the correct underlying rate for that sector. Following the rate change to 15 per cent, those sectors have been left unchanged rather than increased.
I want to leave the scheme because of these changes. What should I do?
Usually, we would expect you to leave the scheme at the end of an accounting period. You can leave the scheme at any time, but this might mean you having to perform different calculations to determine your VAT liability. If you do wish to leave the scheme, you must write and tell us. We will confirm the date you left the scheme in writing.
I use the cash based turnover method. I have received payment for a supply made prior to the change of flat rates. Which flat rate should I use?
Remember that the cash based turnover method allows you to account for your VAT liability when you receive payment. It does not affect the tax point. Supplies made before the rate change remain taxable at 17.5 per cent, even where payment is received after the change.
To determine your VAT liability for a particular transaction, you will first need to identify and separate all payments made and received so that you can identify the appropriate rate of VAT. You must then apply the flat rate percentage that was in place at the time of supply and not the rate that is in place when payment is received. You will probably need to refer back to the original invoices.
16 Annex E - Flat Rate Scheme - New Percentage Rates
Category of business (Appropriate percentage)
Accountancy or book-keeping (11.5)
Agricultural services (7)
Any other activity not listed elsewhere (9)
Architect, civil and structural engineer or surveyor (11)
Boarding or care of animals (9.5)
Business services that are not listed elsewhere (9.5)
Catering services including restaurants and takeaways (10.5)
Computer and IT consultancy or data processing (11.5)
Computer repair services (10)
Dealing in waste or scrap (8.5)
Entertainment or journalism (9.5)
Estate agency or property management services (9.5)
Farming or agriculture that is not listed elsewhere (5.5)
Film, radio, television or video production (9.5)
Financial services (10.5)
Forestry or fishing (8)
General building or construction services* (7.5)
Hairdressing or other beauty treatment services (10.5)
Hiring or renting goods (7.5)
Hotel or accommodation (8.5)
Investigation or security (9)
Labour-only building or construction services* (11.5)
Laundry or dry-cleaning services (9.5)
Lawyer or legal services (12)
Library, archive, museum or other cultural activity (7.5)
Management consultancy (11)
Manufacturing that is not listed elsewhere (7.5)
Manufacturing fabricated metal products (8.5)
Manufacturing food (7)
Manufacturing yarn, textiles or clothing (7.5)
Membership organisation (5.5)
Mining or quarrying (8)
Post offices (2)
Real estate activity not listed elsewhere (11)
Repairing personal or household goods (7.5)
Repairing vehicles (6.5)
Retailing food, confectionary, tobacco, newspapers or children’s clothing (2)
Retailing pharmaceuticals, medical goods, cosmetics or toiletries (6)
Retailing that is not listed elsewhere (5.5)
Retailing vehicles or fuel (5.5)
Secretarial services (9.5)
Social work (8)
Sport or recreation (6)
Transport or storage, including couriers, freight, removals and taxis (8)
Travel agency (8)
Veterinary medicine (8)
Wholesaling agricultural products (5.5)
Wholesaling food (5)
Wholesaling that is not listed elsewhere (6)
‘Labour-only building or construction services’ means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are ‘general building or construction services’.