Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment her Department has made of the potential impact of the Flat Rate VAT Scheme on small independent hospitality businesses' ability to claim VAT on (a) food, (b) energy, (c) supplies and (d) other input costs.

The Flat Rate Scheme offers additional simplification to smaller businesses. It allows VAT to be calculated by the application of a sector-specific percentage. These are lower than the current rate of 20% to allow for VAT on costs which cannot be claimed by scheme users.

These percentages reflect average ratios of VAT on sales and purchases for registered businesses in each sector. They vary between 4% and 16.5% to account for the different levels of normal VAT recovery. This includes the 10.5% hospitality rate. Additionally, the Scheme allows businesses to recover VAT on the purchase of larger capital items.

In this sector many costs do not attract VAT, including food which may be zero-rated and wages which are outside the scope of VAT. Energy costs may be charged a lower rate of VAT depending on usage.

The Flat Rate Scheme is optional, and each business must make its own judgement regarding the additional simplification it offers and the different VAT liability which would be declared if it were used.