You’ll be classed as a ‘limited cost business’ if your goods cost less than either:
2% of your turnover
£1,000 a year (if your costs are more than 2%)
This means you’ll pay a higher rate of 16.5%.
If you aren’t a limited cost business, continue to use your business type to work out your flat rate.
Am I a Limited cost business?
There’s a calculator available to help businesses work out whether they’re a limited cost business – if you want to use the calculator, see the VAT Flat Rate Scheme – How much you pay page
Before you start you’ll need some basic information – use the information that relates to your most recent VAT return period. If you submit quarterly returns this will cover a 3 month period. If you submit annual returns this will cover a full year. You’ll need to know:
your relevant turnover –
the cost of goods – goods must be used exclusively for the purpose of your business and certain goods are excluded from this test.
You’re a limited cost business if the amount you spend on relevant goods including VAT is either:
less than 2% of your VAT flat rate turnover
greater than 2% of your VAT flat rate turnover but less than £1000 per year
If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.
For some businesses this will be clear, other businesses –particularly those whose goods are close to 2% – may need to complete this test each time they complete their VAT return. This is because you can move from a limited cost rate of 16.5% in one period to your relevant sector rate in another. This would happen if your costs fluctuate above and below 2%.
If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting – you may want to check to make sure the Flat Rate Scheme is still right for you.
Example
A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods.
This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.
Currently only higher or additional rate taxpayers pay tax on dividends. However from April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.
This means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
The allowance is available to anyone who has dividend income.
Headline rates of dividend tax are also changing.
You’ll pay tax on any dividends you receive over £5,000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band
We can advise you on how this will affect you and your business.
For Example
“I have a non-dividend income of £6,500, and a dividend income of £12,000 from shares outside of an ISA”
With a Personal Allowance of £11,000, £4,500 of the dividends are under the threshold for tax. A further £5,000 comes within the Allowance, leaving tax to pay at Basic Rate (7.5%) on £2,500.
Latest news issued from HMRC for residents living in Scotland
The Scottish rate of Income Tax will come into effect from 6 April 2016. On 2 December 2015, HMRC will start to contact customers living in Scotland where records show that this is their main address, to inform them they have been identified as being a Scottish taxpayer.
Scottish taxpayers will have a tax code prefixed by an ‘S’. Scottish tax codes will be issued as part of the annual coding routines to employers, so the correct rate of income tax can be deducted based on each individual’s taxpayer status.
If any of your employees live in Scotlandyou will be sent the ‘S’ Tax code in the annual coding run.
You must ensure that your payroll software is up to date and able to apply the new ‘S’ codes.
You will need to apply the new ‘S’ tax code to all employees identified as being a Scottish taxpayereven if the rates of Income Tax in Scotland remain the same as the rest of the UK.
There will be no change to the way you report or make payments for income tax to HMRC, other than applying the ‘S’ tax code to Scottish taxpayer employees.
You do not need to take any action to identify whether any of your employees are Scottish taxpayers, as this will be done by HMRC using the address information held on record.
Please tell HMRC if your address changes, to enable them to correctly identify any Scottish taxpayers and ensure they pay the right amount of tax.
The tax tables will be updated on GOV.UK in February 2016 to show the Scottish rates of Income Tax for basic, additional and higher rate taxpayers.
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