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Small businesses hit by flat rate VAT

The Federation of Small Businesses (FSB) has discovered that many SMEs are being hit by a rise in the level of flat rate VAT.

The FSB says that nearly half of SME business sectors are affected. Flat rate VAT is a charge applied to only the smallest businesses, those with a turnover of less than £150,000. It aims to minimise red tape by providing a slightly lower VAT rate depending on the sector the business operates in.

John Wright, national chairman of the organisation, says: ‘When VAT was lowered in December 2008 many rates stayed the same and some were reduced by up to 2.5 per cent. What has become apparent is that after VAT was put back to 17.5 per cent in January this year, nearly half of the flat rate schemes have seen the VAT level rise above the pre-decrease level. While a few sectors have seen a decrease, the majority of businesses will see their rates rise, which is unacceptable at a time when cash-flow is limited.’

HMRC denied that the increases in some of the flat VAT rates represent a stealth tax: ‘This is a more accurate re-calculation of what different sectors should be paying,’ a spokesperson said. According to HMRC, 31 per cent of current users have seen an increase in the flat rate, while 51 per cent have seen no change and 18 per cent have seen a reduced rate.

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