PBR follow-up: Flat rate VAT schemes fall short
The chancellor is trying to rescue the flat-rate VAT scheme, which only a fraction of eligible companies have so far signed up to.
Link: Pre-Budget special report
“> Gordon Brown announced in the pre-Budget report that the scheme is to be extended. The move comes in the wake of research by Customs & Excise that showed only 15,000 out of more than 600,000 companies had taken advantage of the measures. Around 670,000 of the smallest businesses are eligible for the voluntary scheme, which aims to cut down on red tape by allowing firms to calculate VAT as a percentage of total turnover, instead of on individual sales.
After its introduction in the 2002 Budget, accountants warned firms might pay more under the scheme . The chancellor announced on Wednesday that the existing rate, which varies from 5% to 14.5% depending on sector, would be reduced to 2% to 13.5%. First-year start-ups will be eligible for a further discount of 1%. Adrian Houstoun, VAT partner at Kingston Smith, said: ‘The reduction is a help, but I still have some doubts whether it?s enough to attract appreciably more people.’
He added: ‘Take-up was very poor. My personal view is that the rates they came up with were too high, so if Brown had not done something, the scheme would not have fulfilled its objective.’