Here’s a brief roundup of the key headlines from the chancellor’s first Budget:
The state of the economy
- UK second-fastest growing economy in the G7 in 2016.
- Growth forecast for 2017 upgraded from 1.4% to 2%.
- But GDP downgraded to 1.6%, 1.7%, 1.9% in subsequent years, then 2% in 2021-22.
- Inflation forecast to rise to 2.4% in 2017-18 before falling to 2.3% and 2.0% in subsequent years.
- A further 650,000 people expected to be in employment by 2021.
- Annual borrowing £51.7bn in 2016-17, £16.4bn lower than forecast. Borrowing forecast to total £58.3bn in 2017-18, £40.6bn in 2018-19, £21.4bn in 2019-20 and £20.6bn in 2020-21.
- Public sector net borrowing forecast to fall from 3.8% of GDP last year to 2.6% this year, then 2.9%, 1.9%, 1% and 0.9% in subsequent years, reaching 0.7% in 2021-22.
- Debt rose to 86.6% this year, but will fall to 79.8% in 2021-22.
We truly believe that a healthy body and mind can directly affect how your work, your productivity and how your business grows. That’s why we were impressed to see Xero’s 2017 second annual Make or Break report, where research revealed that 78% of small business owners believed their personal well-being (as well as that of their employees) is inextricably linked to the health of their business. As a result, they make their health and happiness a top priority.
If your business is registered on the VAT Flat Rate Scheme then you will need to be aware of the changes being implemented from April 2017. You may recall this being announced in the Autumn statement as an action to tackle aggressive abuse of the scheme.
The Flat Rate Scheme, or FRS as it’s commonly referred, is a simplified VAT scheme which allows businesses with a low cost base to set the net VAT due to HMRC based on a trade sector percentage.
From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.
Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.
Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.
So what is a limited cost trader?
A limited cost trader will be 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 VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the 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 part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
HMRC have developed an online test to help businesses work out whether or not they will be classed as a limited cost trader. Click here to take the test.
If you’re unsure how these changes may affect your business, please contact us for support.
Thanks for reading.