Firms registered for the flat-rate VAT scheme have seen their tax bills increase under new rules introduced by HM Revenue and Customs.
HMRC has reportedly 'recalculated' the rates charged in some sectors under the scheme. As a result, some firms have seen their total tax bills increase by as much as 2.5 per cent.
There are currently around 190,000 firms registered for the flat-rate scheme, which provides a simplified accounting procedure for VAT-registered businesses with turnover below £150,000. HMRC has said that 31 per cent of those firms have seen their bills increase. Just 19 per cent have seen a reduction.
Under the flat-rate scheme, VAT liabilities are calculated as a percentage of the firm's total annual turnover. This means that they cannot offset VAT they pay against their total bill. Instead, the taxman determines sector-by-sector rates at which VAT liabilities are charged.
The move is likely to cause some firms to move from the flat-rate scheme to the conventional VAT accounting method.