Switching between percentages under the VAT FRS

Switching between percentages under the VAT FRS: am I reading this right?

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VAT notice 733 says the following.

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%.

Does this mean that a business constantly monitors its expenses, and applies the FRS percentage quarter by quarter?

If the business is a low cost trader one quarter, it applies the 16.5% Flat Rate rate.

If the business is not a low cost trader in the next quarter, it applies the normal FRS percentage for its trade?

The business switches between 16.5% and X%, several times over the year, depending on the expenses? It is not an annual, or permanent, percentage?

Thanks.

Replies (2)

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RLI
By lionofludesch
24th Mar 2017 12:32

It looks that way. Bad news for seasonal businesses.

Of course, we use an annual adjustment for partial exemption to smooth out any such peaks and troughs.

Thanks (1)
Replying to lionofludesch:
By Ruddles
24th Mar 2017 12:51

The seasonal business could always switch to annual accounting if, over the year, it would fall outside the new rules.

In theory, though, because we're talking about goods, seasonality should not cause a problem - unless those goods are purchased out of season.

Thanks (1)