Nightmare VAT rate of 117 per cent for small businesses

VAT at 117 per cent! What’s going on? A local retailer and TPA supporter tells me about a strange incident at a government-sponsored business event in Bristol.

As a small businessman he attended the show, hoping to pick up some tips on how to expand his business. Among the schemes being promoted was ‘Growth Accelerator’, a partnership between private sector business growth experts and the government. It offers specialist advice from ‘growth coaches’ and promises new routes to investment, new connections, and exciting new strategies. Who could resist it?

Over 6000 businesses have, apparently, joined the programme since it was launched in May 2012. Vince Cable, Business Secretary, is a fan of it and it is a conduit for the billions of taxpayers’ money being lent through the Funding for Lending Scheme. If you are keen to take advantage of the scheme, it advises that a growth coach be assigned to your business for three to nine months as well as you attending master-classes and workshops. The cost of most of this is met by the government (paid for by taxpayers).

There is, however, a cost to the client and that depends on the size of your business. If you have 1-4 employees it’s £600, 5-29 employees £1500 and 50-249 employees £3000. VAT is due on this fee and this is where it gets strange.

‘VAT is based on 20 per cent of the nominal value of the service, at £3,500,’ says its website, ‘so all businesses pay the same amount of VAT.’ What?

‘The weird thing is that no matter which level you are on,’ says our local businessman, ‘you pay VAT on the full nominal amount of £3500, so every business pays £700 in VAT. For us, as a small business of 1-4 employees, this would mean we would pay £700 VAT on a fee of £600—more than the fee itself—so a VAT rate of 117 per cent!’

‘How do they figure that one?’ Maybe it’s a tax growth accelerator they’re talking about!

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