What counts as relevant goods?
In summary, relevant goods are used exclusively for the purposes of your business, but don’t include:
- vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
- food or drink for you or your staff
- capital expenditure goods of any value
- goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
- goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
- any services
HMRC have given the below examples of relevant goods, this is not an exhaustive list:
- stationery and other office supplies to be used exclusively for the business
- gas and electricity used exclusively for your business
- fuel for a taxi owned by a taxi firm
- stock for a shop
- cleaning products to be used exclusively for the business
- hair products to use to provide hairdressing services
- standard software, provided on a disk
HMRC have also given the below examples of items that are NOT relevant goods:
- accountancy fees, these are services
- advertising costs, these are services
- an item leased/hired to your business, this counts as services, as ownership will never transfer to your business
- food and drink for you or your staff, these are excluded goods
- fuel for a car this is excluded unless operating in the transport sector using your own, or a leased vehicle
- laptop or mobile phone for use by the business, this is excluded as it is capital expenditure
- anything provided electronically, for example a downloaded magazine, these are services
- rent, this is a service
- software you download, this is a service
- software designed specifically for you (bespoke software), this is a service even if it is not supplied electronically
So what does all this mean?
As you will see from the above examples of costs , the majority of freelancers and contractors, as well as service based businesses, are likely to not have much in the way of relevant goods, so are likely to be categorised as limited cost traders.
If you are categorised as a limited cost trader it means that you may end up paying more VAT than if you were on the standard VAT scheme instead, so you should check your circumstances to see if you would be better off either leaving the flat rate scheme, or de-registering for VAT if you are below the de-registration threshold which is £83,000 from 1 April 2017 (rolling 12 months turnover pre VAT).
If you need any help or guidance on how to handle you VAT affairs, especially if you feel these new Flat Rate VAT rules might apply to you, please get in touch with us to discuss what to do next.