VAT change to cost business £125m

The headache of meeting VAT requirements will worsen for the smallest companies, both in terms of how much time and money the indirect tax takes from their business.



Implementing changes to VAT in time for January will cost millions in administration fees, further to potential cost arising from the fresh prospect of it increasing to 20 per cent.



While the latter assumes the Tories will set the rate if they win the next general election, which must be held by June 2010, the former is an incoming bill based on official estimates.



Reportedly buried in a government impact assessment, the estimate suggests small firms will fork out £125million in the coming months, as they align with the old rate of 17.5 per cent.



Alistair Darling, the chancellor, temporarily dropped VAT to 15 per cent last April, in a bid to stimulate spending, a move that cost firms a total of £175million, the state estimate says.



The British Chambers of Commerce, which saw the estimate, told the Mail on Sunday that postponing the re-introduction of the 15 per cent rate until after January would be "sensible."



But the scenes of firms being forced to change their prices, invoices and software systems, to reflect a new rate, look likely to play out, again, after the planned reversal takes effect.



The Sunday Telegraph reported that the Conservatives are studying plans to increase VAT to 20 per cent – a rate that could take effect within weeks of a Tory victory at the next election.



A Tory spokesman said there were no plans to raise VAT, but the paper also cited shadow ministerial sources as saying the 20 per cent levy was being "very actively considered."



If adopted, the levy would raise an estimated £10million, and form the central plank of a raft of "emergency" stimulus measures, designed to repair the hole in Britain's public finances.