Explanatory note

These Regulations, which come into force on 1st April 2017, amend Part 7A (flat-rate scheme for small businesses) of the Value Added Tax Regulations 1995 (S.I. 1995/2518; “the Principal Regulations”).

The effect of these amendments is to introduce a new flat-rate percentage for flat-rate traders who operate on a limited cost basis (“limited-cost traders”).

Regulation 3 makes changes to the interpretation of Part 7A of the Principal Regulations with the insertion in regulation 55A of the Principal Regulations of a new paragraph which defines a limited-cost trader.

Regulation 5 makes consequential amendments to regulation 55H of the Principal Regulations with the effect that the appropriate percentage for flat-rate traders, for certain prescribed accounting periods, will no longer be determined by reference to the rate applied in a trader’s previous prescribed accounting period.

Regulation 7 inserts a new regulation 55KA in the Principal Regulations. This applies an appropriate percentage rate of 16.5% to flat-rate traders who, for any prescribed accounting period, fall within the definition of “limited-cost trader” and a percentage rate of 15.5% for limited-cost traders in newly registered periods.

Regulation 8 inserts a new paragraph in regulation 55N of the Principal Regulations so that the notification requirement in regulation 55N will not apply to changes in the appropriate percentage arising only from the application of the new regulation 55KA.

Other consequential amendments are made in regulations 4 and 6.

A Tax Information and Impact Note covering this instrument will be published on the government website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins .