Some small firms could be worse off as a result of the emergency VAT cut, which comes into force today.

Small businesses were enraged yesterday after realising that companies that take advantage of the flat rate VAT scheme will keep a lower proportion of the VAT they collect from customers.

In Monday’s pre-Budget report, the flat rates were lowered by a smaller margin than the headline 2.5% reduction, leaving small businesses paying out more in tax than they had previously.

At present, some 184,000 small businesses take advantage of the flat rate VAT scheme which relieves them of the time and effort of making VAT reclaims as made by larger companies.

HM Revenue and Customs said that firms would benefit from paying a lower VAT rate on their expenses.

A Revenue spokesperson told the BBC: “From Monday businesses in the flat rate scheme will be paying less tax to HMRC.

“Some will keep less of the VAT they collect from their customers but on top of paying less VAT they will also benefit from paying the lower rate on their expenses.”

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