The change, first mooted in the Chancellor’s pre-Budget report in November, was confirmed by Small Business Minister Nigel Griffiths at the Federation of Small Businesses (FSB) annual conference and will come into effect from 1 April this year. Griffiths also promised more assistance with regulatory issues for small businesses.

Originally aimed at businesses with a turnover of up to £100,000, the scheme, introduced in April 2002, simplified bookkeeping and gave greater certainty about VAT liability. The scheme will now apply to businesses with turnover of up to £150,000.

Small businesses in the scheme do not have to keep detailed records of their sales or purchases; at the end of the financial period, they just apply an agreed flat rate percentage to their total turnover. Customs & Excise estimate small businesses can benefit by up to £1,000 a year. They are able to join the scheme from the day they become VAT registered.

Griffiths was keen not to overstate the effect of red tape on small businesses, but said he wants to “work constructively with the FSB to have a sensible debate on how we can reduce the burden further”.