Following our article last week, there have been further developments on the VAT flat rate changes which will come into place from 1st April 2017. HMRC have updated their guidance on what purchases constitute goods when calculating whether you are a ‘Limited cost business’.

The new changes to the scheme mean that the Vat rate will increase to 16.5% if your expenses are less than 2% of your gross turnover. You will need to make this calculation for each quarterly VAT return. HMRC have now clarified which expenses aren’t allowable when calculating the 2% cost figure as listed below:

  • any services – which is anything that isn’t goods
  • expenses like travel and accommodation
  • food and drink eaten by yourself or your staff
  • vehicle costs including fuel unless you’re in the transport business using your own, or a leased vehicle
  • rent, internet, phone bills and accountancy fees
  • gifts, promotional items and donations
  • goods you will resell or hire out unless this is your main business activity
  • training and memberships
  • capital items for example office equipment, laptops, mobile phones and tablets


This list is not exhaustive but provides a good indication about what is not allowable.


HMRC’s online calculator tool can be found here.