The flat rate VAT charged to small businesses is higher than before the recession, with some 48% of business sectors reporting an increase, the Federation of Small Businesses (FSB) has said.

The flat rate VAT is the difference between the VAT that a company charges their customers and the VAT a company pays on purchases.

The flat rate, which is charged to small firms with an annual turnover of under £150,000, is designed to minimise the cost of administration surrounding VAT faced by small businesses. 
 

However, the FSB has discovered that small firms operating in the retail sector, most notably newsagents, greengrocers and clothing shops, have seen VAT rates increase by around 1.5%. In addition to this, small businesses operating in the agricultural services sector have seen their rates rise by 2.5%.

Consequently, the FSB has urged the UK Government to review the issue in its annual Budget submission to the Chancellor this week.

The National Chairman of the FSB, John Wright, commented:

"When VAT was lowered in December 2008 many rates stayed the same and some were reduced by up to 2.5 per cent. What has become apparent is that after VAT was put back to 17.5 per cent in January this year, nearly half of the flat rate schemes have seen the VAT level rise above the pre-decrease level."

Mr Wright added that the Budget is the government's opportunity to put flat rates back to 2008 levels and remove any additional tax burdens imposed on small firms.

The FSB recently joined 7 other leading UK business groups in a new business coalition aimed at reversing the National insurance increases planned for next year.