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Reduce VAT rate for small business; letters.

THIS week the Government saw off opposition from ministers opposing the rise in VAT to 20%, with the rise due to go ahead on January 4, 2011. While all businesses will have to accept this increase there will also be changes to VAT flat rate, a scheme open to businesses with lower annual turnovers.

Under the flat rate scheme a business calculates its VAT liability as a fixed percentage of its turnover.

The percentage varies from 3.5% to 13.5% depending on the business sector concerned. In light of the rise in VAT, the government will also raise the maximum annual income threshold from pounds 225,000 to pounds 230,000 which will provide some relief for small businesses.

While schemes such as the VAT flat rate are intended to help small businesses, in reality they also add an additional layer of complexity to the system which business owners already struggling to stay afloat could do without.

A simple reduction in the VAT rate for businesses under a certain size would provide a bigger boost. When deciding on taxation policies the government should start with the basics and build upwards.

Small businesses are the key to maintaining the momentum of our recovery and good financial practice backed by strong, supportive tax policies are a crucial element for survival. The coalition government must continue to bear in mind the impact on small businesses when introducing similar policies in future.

Chas Roy-Chowdhury, head of Taxation at ACCA (Association of Chartered Certified Accountants)
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Title Annotation:Letters
Publication:Daily Post (Liverpool, England)
Date:Jul 27, 2010
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