Pre Budget Report 2009 - VAT

Standard Rate
Before the PBR there were rumours that the Chancellor would look to an increase in the rate or scope of VAT to try to fill some of the hole in the public finances. If he has such a plan he chose not to tell anyone about it this side of a General Election. The standard rate goes back up from 15% to 17.5% on 1 January 2010, but there is no indication that it will go up again after that, or be applied to any of the categories that are currently VAT-free such as food, children's clothes, newspapers and new houses.

Flat rate

The flat rate scheme for small traders operates by disallowing input tax on expenses, but allowing the trader to keep some of the output tax charged to customers in order to compensate. Different flat rates are set to reflect the different circumstances of each of over 50 categories of business. It is up to the business to decide which rate to apply, but HMRC can object to the choice made if they carry out an inspection.

When the standard rate was cut from 17.5% to 15%, the flat rates were also reduced, but not by the same amount. On 1 January 2010, the flat rates change again, but they do not necessarily go back to where they were before. Some are higher, some are lower, some changes are 0.5% and some are up to 2.5%. Any FRS trader should consult the list on the HMRC website, or contact us, to make sure that they are applying the correct rate in 2010.