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Pre-Budget Report 2009: VAT

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Changes to the flat rate VAT scheme have been announced in the pre-Budget Report.

These were generally expected and necessary because the standard rate of VAT is to revert back to 17.5 per cent on 1 January 2010 after 13 months at 15 per cent.

The scheme allows small businesses with an annual turnover up to £150,000 to pay HMRC a fixed percentage of their turnover, rather than the usual payment of output tax and recovery of input tax on actual positive rated outputs and inputs. The percentages are based on the norm for particular business sectors based on statistics available to HMRC.

The percentages were revised downwards on 1 December 2008 when the standard rate was reduced to 15 per cent. However, the changes from 1 January 2010 will not only reflect the reversion to the 17.5 per cent standard rate, but also take into account business patterns across the various sectors over the last year.

Joining the scheme is optional and businesses are entitled to leave it any any time. Leaving the scheme retrospectively is at HMRC’s discretion. However, they have stated that they will apply this sympathetically if buisnesses consider it is no longer helpful to them after the changes.