Commentary

V7.228 Flat rate scheme—choosing a business category

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.228 Flat rate scheme—choosing a business category

Part V7 Tax planning | Commentary

V7.228 Flat rate scheme—choosing a business category

With the exception of limited cost traders, the choice of the trade sector and the relevant flat rate percentage to adopt is down to the individual business to choose from the table in the VAT Regulations 1995 (SI 1995/2518), reg 55K. In making a choice, the everyday meaning of the words should be used. HMRC has published guidance in VAT Manual FRS7200 on their website. A limited cost trader is defined in the regulations as 'a flat-rate trader whose expenditure on relevant goods in any prescribed accounting period, together with any VAT chargeable on that expenditure, is less than the higher of 2% of turnover in the relevant period or, if the accounting period is a year, is less than £1,000'.

Once HMRC has approved a business to join the scheme, it will not change the category of business on a retrospective basis as long as the choice made by the business was reasonable and records have been kept as to why it was chosen. For example, there may be certain businesses that could overlap into two different categories, and the final choice will require a careful

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