Government Stealth Tax On Small Businesses Discovered By FSB

THE FEDERATION FOR SMALL BUSINESSES (FSB) has discovered that 48 per cent of business sectors have seen a rise in the level of flat rate VAT they pay.

The Federation has discovered that the flat rate VAT charged by HMRC to the smallest of businesses has risen to a higher level, and the FSB has urged the Government to review the issue in its Budget submission to the Chancellor this week.

Flat rate VAT is charged to the smallest businesses with a turnover of less than £150,000 and aims to minimise the red tape around administering VAT providing a slightly lower rate which varies dependent on the sector the business operates in.

FSB analysis of the rates has found that businesses operating within the agricultural services sector and membership organisations have seen rates increase by a huge 2.5 per cent. For grocers, newsagents, tobacconists and clothing shops: rates have risen by 1.5 per cent – as have those for businesses involved in social work.

At the other end of the scale, estate agency and property management services will see their rate decrease by 0.5 per cent, and computer repair services by 1.5 per cent.

In its Budget submission, sent to the Treasury this week, the FSB has called for the flat rate VAT to be immediately reviewed. Other key asks in the submission included:-

• A complete freeze on National Insurance Contribution (NIC) rises, and a reverse on the Government’s plan to increase employers’ NICs in 2011
• An immediate reform of the tax system:
• Raising the level at which businesses have to register for VAT
  Standardising personal allowances for all forms of NI and income tax
  Improving tax guidance for start-up businesses and new employers
• Cancellation of the planned one per cent rise in corporation tax in 2011

Essex FSB Chairman, Iain Wicks, said:  “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 from Essex, Havering or Redbridge using this scheme will see their rates rise, which is unacceptable at a time when cash-flow is limited.

“Essex FSB believes that this is a stealth tax, which will affect a firm’s overall profitability, deliberately directed at small businesses during the recession.

“Essex FSB believes there needs to be more openness in how these rates are calculated and when they rise.

“The Budget is the Governments chance to put flat rates back to 2008-levels and remove the additional tax burden imposed on small businesses.”