What is a Limited Cost Trader?

Limited Cost Trader
‘Limited Cost Trader’ is a business category in HMRC’s Flat Rate VAT Scheme (FRS), denoting a small business with low annual costs.

After 1 April 2017 businesses using the Flat Rate VAT Scheme will have to decide whether or not they are a ‘Limited Cost Trader’ in the eyes of HMRC.

A ‘Limited Cost Trader’ is a business whose goods cost less than 2% of turnover, or more than 2% of turnover but less than £1,000 per year. From April 1, 2017 Limited Cost Traders will pay a rate of 16.5% Flat Rate VAT, regardless of the nature of their business.

You can work whether you are a Limited Cost Trader by adding together the cost of all qualifying goods you have bought for your business. You can’t include items such as food and drink, capital goods or vehicles, vehicle parts and fuel (unless you run a transport business such as minibus hire).

The Limited Cost Trader category was introduced to stop small businesses benefitting unfairly from the Flat Rate Scheme Scheme by having very low costs. If you are not on the VAT Flat Rate Scheme, you don’t need to worry about whether or not you are a Limited Cost Trader.

If you are a Numberworx customer and you are already using the Flat Rate Scheme, your personal bookkeeper will work out whether you should be paying the Limited Cost Trader rate of 16.5%. He or she will also advise you whether to stay on the FRS or move to one of the other VAT schemes available.

Any questions?

If you still have questions regarding Limited Cost Trader status, the team at Numberworx is here to help. Leave your question and one of us will reply soon.