Okay, I’m getting a bit ahead of myself, but I suspect I’ve spotted the first tax con of the budget – because there is a way Brown can turn the VAT cut into a tax rise for small businesses. He may find it too alluring to resist. Small firms and sole traders must charge VAT to their customers at 17.5%, but if their turnover is below a certain threshold they pay their VAT to HMRC at a flat rate of, say, 12.5%. They keep the difference, 5%, on which they’d pay corporation tax. Now, if the VAT rate falls to 15%, will the flat rate they must pay to HMRC also fall? If not, the 5% becomes 2.5% and the small business ends up paying more tax. Now, I am being cynical: HM Treasury may be good and honest and adjust the flat rate the charge such small businesses (details here). But I doubt it. I’ll keep you posted.
Fraser Nelson
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