HMRC Rips Off Small Businesses with VAT Change

Today, I received my formal notification of the change in VAT rates. The Brown led Labour Government have made huge a song and dance about the so-called 2.5% cut in the standard rate from 17.5% to 15%. I call it so-called because even goods sold at the standard rate of VAT will only see a 2.13% reduction in their retail selling prices.

As a small business I am a member of the Flat Rate scheme. This means rather than have a complicated system of working out the deductions relating to input VAT I merely pay a flat rate to HMRC. The Flat Rate Scheme is available to most businesses turning over less than £187,500 (including VAT). It is a scheme that the UK Government is obliged promote under a directive from the EU.

I was surprised to find that on checking the new "detailed guide" that the flat rate for my trade sector had fallen from 9.5% to 8.5%. After all, the standard rate had fallen 1/7th, that is 14.3%. Why should the flat rate for my sector fall by just 10.5%?

I investigated further. The average flat rate across 55 trade sectors is 8.9% until 30th November and falls to 8.1% on 1st December. A fall of just 9.0%. Some sectors - including pubs - haven't changed at all. Despite collecting less VAT at the point of sale, these businesses will be expected to pay the same amount of VAT as before. This is a shocking state of affairs, that means the small business sector is actually paying for Gordon Brown's much heralded fiscal stimulus.