The Federation of Small Businesses announced on March 4 that, for some sectors, Flat Rate VAT has risen - a stealth tax that could hit some businesses' bottom line by as much as 2.5%. However, that's not the only stealth tax potentially hitting small firms. Changes to how owners of holiday lets are considered by HMRC may further impact some of Britain's smallest businesses. Stealth tax refers to tax that may go unnoticed, so probably not the best description for funds removed from SMEs who don't have the cash flow to accommodate any extra taxation.

Flat rate VAT
For businesses with a turnover of less than £150,000, the flat rate VAT scheme reduces the red tape surrounding VAT to provide a slightly lower tax rate. You won't be able to reclaim VAT on purchases, but this is taken into account when the flat rate percentage is calculated.


With cash-flow an issue for many SMEs, any additional tax may add to the struggle of keeping a business afloat

A fixed percentage of your gross turnover is paid each year instead of paying the total VAT charged on invoices, minus any input VAT you may reclaim. The scheme also takes some of the hassle out of bookkeeping. There's no need to separate out the gross, net and VAT and in the first year of registration you will get a 1% reduction on your flat rate percentage. To work out the Flat Rate VAT for your business visit vatreadyreckoner.hmrc.gov.uk

When VAT was lowered in December 2008, some flat rates were also reduced. In January VAT was put back up to 17.5% and along with it, 48% of flat rate schemes were also raised above the pre-decrease level.

Some sectors have been hit worse than others: the agricultural, services sector and membership organisations have seen a rise of up to 2.5%; grocers, newsagents, tobacconists, social work, computer repair services and clothing shops, up to 1.5%. For a lucky few the rate has fallen - estate agents and property management services will see their rate decrease by 0.5%.

Holiday-let tax
A new tax on those property owners who let out their second homes to paying guests for a substantial part of the year, could impact on an estimated 60,000 businesses. According to The Treasury this will take effect in April 2010.

The new changes will mean that people who let their second homes to paying guests for a substantial part of the year will be viewed as investors, rather than traders. There will be a massive reduction in tax breaks for those affected.

As traders, under the current scheme, holiday home landlords can offset the cost of furniture and fittings against earnings. In some cases, this can equate to thousands of pounds a year. Other tax breaks include reduced capital gains tax when they come to sell, inheritance tax benefits and the option to write off trading losses against other income, which reduces the amount of income tax they pay. As investors, all of these tax breaks will be taken away.

With cash-flow an issue for many SMEs, any additional tax may add to the struggle of keeping a business afloat in these times of economic uncertainty. Using the services of a reputable accountant will ensure that you don't pay too much tax, while helping you choose the best approach for your business.

For more information please visit www.accountsassist.co.uk