Small firms prepare for VAT headache

Small businesses face paying the wrong amount of tax and being fined heavily as they lack the preparation to readjust to the end of the temporary cut in VAT.

Stephen Alambritis, of the Federation of Small Businesses (FSB), said: "Companies will be suffocated by further red tape as a result of the change and they will face crippling tax fines if they get their tax wrong."

The FSB claim that many small companies are confused about how much tax they should be paying from next year, when VAT reverts to 17.5 per cent from 15 per cent on January 1, 2010.

Some organisations and politicians have been campaigning to have the planned rise postponed, but Chancellor Alistair Darling recently confirmed his intention to revert to the 17.5 per cent rate.

Businesses, particularly retail outlets, complained about the administrative burden the decrease in VAT imposed on them last year. Now, they will have to prepare further for further disruption as the rate reverts back in January.

In April this year the Government doubled the standard penalty for companies that make an error on VAT payments from 15 per cent to 30 per cent.