A. Your client has a flat rate of 14.5% as a carpenter because the materials supplied form less than 10% of his carpentry income; however, there is also a rate of 9.5% if the materials supplied are 10% or more of the carpentry turnover. As a retailer, he would fall into the category ‘Retailing that is not listed elsewhere – hardware’, which attracts a flat rate of 7.5%.
Where a business fits into two or more sectors, it should apply the percentage for the trade with the highest turnover; it does not apply more than one percentage. Please note, whatever category a business falls into, the limited cost trader rates can still apply if the business is not making sufficient purchases of relevant goods – see VAT Notice 733 section 4.4.
As there has been a change in the balance of the business whilst still doing the same activities as before, your client should carry on using the 14.5% until the start of the VAT period containing the anniversary of joining the scheme. At that point your client should review which sector is, or is expected to be, the main business activity, again measured by turnover. It is likely that now the shop is open six days a week, if the carpentry side becomes the smaller part of the business he would switch to a flat rate percentage of 7.5% from the period containing the anniversary.
If your client’s flat rate percentage changes he must inform HMRC in writing within 30 days of the change.
For more information regarding the flat rate percentages, see https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs7200.
If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
