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VAT
Flat rate scheme
The VAT flat rate scheme is designed to
simplify VAT accounting for small businesses. It is open to businesses with a
taxable turnover (excluding VAT) of £150,000. Instead of calculating the
VAT as normal it is calculated as a percentage of total turnover, the
percentage being determined according to business sector.
The
government has been concerned that the rate of take-up for eligible businesses
has not been high and therefore proposes some changes effective from 1 January
2004. The proposed changes are as follows:
- lower rates for all sectors, with an
average reduction of around 1%
- a further reduction of 1% off the normal
flat rates for businesses in their first year of VAT registration
- telephone and email applications to make
joining the scheme easier
- a revised table of flat rate sectors.
The new rates will range from 2% to 13.5% (1%
to 12.5% for new businesses) compared to existing rates of 5% to 14.5%.
Assigned debts
New rules are being introduced to prevent VAT
avoidance on debts assigned by companies to connected businesses. Businesses
that are not paid by their customers can reclaim from Customs the VAT they
charged but have been unable to collect. Normally the VAT is repaid to Customs
if the business subsequently receives payment from its customer but this rule
did not apply where the debt had been assigned.
Where a debt is
assigned on or after 11 December 2003 and payment is subsequently received by a
connected business to which the debt has been assigned the VAT will have to be
repaid to Customs.
Partial exemption
Partially exempt businesses calculate the VAT
they are entitled to reclaim either using a standard method or by using a
special method tailored to their needs. Most businesses use the standard method
but where a special method is used it may need to be adjusted when business
circumstances change. However changing a special method takes time and Customs
are concerned they could lose out. Therefore with effect from 1 January 2004,
Customs will have the power to introduce an override with immediate effect.
Other
Customs plans to look at VAT groups with a
view to tackling abuses of the rules through artificially contrived grouping
arrangements.
Customs will deploy a further 450 staff over the next
two years to extend the strategy introduced last year on tackling VAT losses.
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