Mr Darling, self-employment, flat rates and other VAT musings

Survivors of my redundancy or 'sole trader' courses will know we have a bundle of fun with VAT.  Remember all that info I gave you?  Well it's all changing!

Following the Pre-Budget Report on 24 Nov 08 I've been updating and improving all the downloads and handouts which trainees can access through our secure website. The spreadsheets now cope with VAT much better, and I'm just redoing the relevant tip sheets. They'll be ready to roll by Monday.

The main change (for the moment) is the reduction in VAT,  so that's only really going to affect people who are VAT registered. The change in the standard rate from 17.5% to 15% from Monday 1 Dec 08 will have been noticed by anyone who's not been living under a rock.

What you may not have noticed is the reduction in the flat rates for anyone who uses the Flat Rate Scheme for Small Businesses.

There is a note hidden away on the HMRC website at this link (PDF file, 384 KB - Look at Annex E for the new rates).

You'll see that Film, TV and Media production is down from 10.5% to 9.5% from 1 Dec 08 until VAT goes back up again, probably in Jan 2010.

Incidentally I have a theory about why Mr Darling reduced VAT rather than, say, reducing income tax. There's been a lot of moaning in the papers about a 2.5% reduction being tiny in the scheme of things. And if you consider the saving to you and me when we buy a flat screen TV it is indeed just a couple of quid.

However, reducing VAT allows retail businesses to either pass on the reduction to customers in full or keep price tickets nearer their old level, and increase their own cashflow. Cash is king in a recession, so this may be a better way to stop the wheels falling off some struggling businesses.

In other words, reducing VAT allows retail businesses to make business choices. The fact that it sounds like a benefit to customers is politically expedient because it makes the headlines, but it's not quite so relevant to the economy as a whole.

Comments

[jeff paul portal]

Thanks for bringing this to my attention - I’ve reviewed it myself now. A very enjoyable read