1

The normal VAT in UK is already 20%.

Note that 16.5% VAT flat rate for £100 is not £16.5 but £20.0. HMRC does not calculate like any other country I know. The 16.5% is calculated on the invoiced gross amount including the normal VAT. 16.5% of £120 is £20 (or £19.8 calculating with double precision)

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    Taxes raise revenue for the government. The precise rate and structure of the tax are a matter of economic modelling and political haggling. – Lawrence May 6 at 12:25
  • I considered closing this as a duplicate of money.stackexchange.com/questions/102676/…, as it contains mostly the same information, but it's a different perspective so in the end I didn't. – GS - Apologise to Monica May 6 at 17:07
  • I see, the answer is the same hence I am ok with you marking this as duplicate. – Penny Fox May 6 at 23:24
4

The 16.5% rate applies to businesses that spend less than 2% of their turnover, or less than £1,000 on goods. It was raised in 2017, probably because the normal flat rates are too favourable for such businesses.

As you say, the precise calculation gives £19.80, so it's still marginally favourable if total costs are less than 1%. Or people might choose it to limit their administrative effort, even though they lose out slightly in actual tax paid.

  • If you earn £100k and spend £900, you save £20 with the flat rate. Not worth a dedicated law. But I see your point regarding less administration if you spend below 2% (very roughly) – Penny Fox May 6 at 23:30
  • @PennyFox It's not really a dedicated law, more of a tweak to the existing law on flat rates, as a way of reducing the benefit/discouraging certain people to use them. – GS - Apologise to Monica May 7 at 8:22

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