Some barristers may see a tax rise
The VAT Flat Rate Scheme was introduced to reduce the administrative burden on small business but this would mean that if the scheme is adopted, the trader would not be able to recover any VAT on day-to-day expenses.
Barristers using the Flat Rate Scheme for VAT may see their rate of VAT payable rising from 14.5% to 16.5%.
A new ‘limited cost trader’ rate will be introduced from 1 April 2017 and some barristers will fall into this trap. A ‘limited cost trader’ is one whose VAT-inclusive expenses are less than 2% of income. For a barrister receiving £150,000, this means £3,000 of expenses.
Whilst that limit normally is surpassed, capital items and motoring costs are excluded from the calculations as are non-VATable items such as BMIF, some chambers expenses and professional subscriptions.
It will be prudent to review the situation before the changes are implemented as the additional tax burden could be an extra £3,600 per year.
Read our initial reaction to the Autumn Statement here.