The introduction of the ‘limited cost business’ category for the flat rate scheme moved the goalposts for thousands of scheme users. Two years on, Neil Warren considers if and when the scheme still has a useful purpose for small businesses
Time flies by very quickly! I can’t believe that two years have passed since the most important date in the history of the flat rate scheme (FRS), when a new category was introduced for a ‘limited cost business’ (LCB) on 1 April 2017. In a nutshell, a 16.5% rate applies to users that spend either less than 2% of their gross sales on goods or £250 in a VAT quarter. This draconian rate has wiped out the financial gains previously enjoyed by thousands of scheme users across the UK, particularly those businesses that sell standard rated services, with not much input tax to claim on their expenses. In many cases, these businesses used to qualify for a favourable rate of 12% for ‘business services not listed elsewhere’.