Limited Cost Trader

Due to a change in the law from April ‘17, anyone who uses the simplified FRS method of VAT will have to pass an expenses test in order to stay on their current percentage rate. If you fail this test you are, what HMRC call, a ‘limited cost trader’ and will have to change the percentage rate that you pay back to HMRC to 16.5%.

We understand that this can be quite complicated and would be happy for you to give us a call so that we can talk you through the VAT options available to you.

Frequently Asked Questions

What’s the expenses test?

In order to continue benefiting from your current FRS percentage you will need to prove that your qualifying business expenses are both:

  • More than £1,000 per year; and
  • Greater than 2% of your turnover, reviewed each quarter, inclusive of VAT.
What are the qualifying expenses?

Only certain expenses can be used to meet the requirements of the test, which HMRC calls ‘goods’. Examples of these are:

  • Materials used for your job, for example any consumables, timber, fixings, cables, hardware, aggregate, etc;
  • Equipment and tools, for example hand tools, testing equipment, certain power tools, etc;
  • Hire of any plant, powered equipment, etc;
  • Health & safety equipment and clothing, including Personal Protective Equipment; and
  • Stationery, materials and books.
What expenses can’t be used for the test?
  • Any ‘capital expenditure’ (i.e. large purchases that generally have a useful life of more than one year, for example a laptop or mobile phone);
  • Food or drink purchased whilst out of the house for work;
  • Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services, for example a taxi or courier business).

Give us a call on 01252 704 030 or request a call back to help you assess your options (no obligation)

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