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 UK Budget 2001 - Affect on Small Business
Experts Comment

March 8 2001


Deloitte & Touche response on 2001 budget's proposed flat rate VAT scheme for small and medium businesses

To simplify calculating the VAT payable by small businesses, a flat rate scheme will be introduced for businesses with a turnover of less than 100,000. Instead of having to add up VAT liabilities and credits separately, small firms will be able to calculate their liabilities as a percentage of turnover.

John Kennedy, VAT partner at Deloitte & Touche says, "This is a substantial simplification, cutting the red tape for at least 324,000 businesses. It's a shame the bracket couldn't have been extended to companies with a turnover of over 200,000, as then nearly double the number of businesses would have benefited from this measure."

A consultation exercise will be undertaken in the summer to determine details of the flat rate scheme. "We welcome the optional nature of the proposal so that eligible companies can chose to stick with their current method of paying VAT if the flat rate is less favourable for their particular business. Different rates for different types of business could be considered; a service industry should have a lower rate than a goods provider, for example", John Kennedy added.

Further information

Deloitte & Touche is one of the UK's largest professional services firms with 22 offices, over 8,600 staff nationwide and fee income of 796 million in 1999/2000.

It is the UK practice of Deloitte Touche Tohmatsu, a global leader in professional services with over 90,000 people in 130 countries and fee income of $11.2 billion.

March 7 2001

'Small Business Tax Proposals Have Hidden Problems', says Ernst & Young

Leading tax advisers Ernst & Young warned tonight that proposals to allow small companies to pay tax on the basis of their accounting profit could actually backfire.

Tax partner Lindsay Dodsworth says:
"Small companies have to meet two out of three criteria under the Companies Act. If they fail the test two years running they cease to qualify. Any tax regime for small companies is going to have to deal with companies that are close to the edge in terms of qualification. It's all very well to look back at a year and say "was this a small company?" - but the tax system doesn't actually work that way any more.

"It's going to take a significant cultural change for the Revenue to accept that accounts are right and profits aren't being deliberately flattened. Will this mean lots of full-scale investigations of growing companies every year?

"Gordon Brown has introduced a lot of tax credits which small companies can benefit from. But how will these interact with the small company limits? There are a lot of questions which the consultation process is going to have to deal with."

Further Information.
.Budget 2001 In-depth Analysis

Enquiries Ernst & Young Budget Hotline 0207 951 5000
Ernst & Young Budget 2001 Web Pages [click here].

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last modified: May 25th 2001