Small businesses could be put off appealing against unfair VAT bills because under a proposed rule change they are no longer entitled to claim costs at a tribunal, even if successful.

Denis Holly, director of VAT at Midland accountants Horwath Clark Whitehill, says the change proposed by the Ministry of Justice will have a particularly severe impact on SMEs.

They will be unwilling to go through the tribunal process and engage professional help if they cannot guarantee they will be able to recoup the expense.

He said: "The new rules are a result of the merger between the Inland Revenue and HM Customs, which seeks to establish a common system for direct and indirect taxation tribunals. Costs are not awarded in direct tax tribunals and that principle is mooted to be applied to indirect tax tribunals.

"It makes sense to have a common approach; it’s unfortunate the rules on costs have been moved in the wrong direction."

He said small businesses often received inaccurate assessments for relatively small amounts and have appealed on the basis they would recover costs if successful.

Many would now decide it was not cost-effective to appoint professional advisers to launch an appeal and would pay up.

"If a small business decides to go it alone and appeal without expert help, their chance of success is severely limited.

"A likely result is only large companies will feel it worthwhile and worth the risk of appealing against poor VAT assessments.

"By not appealing, businesses are simply handing over hard-earned cash to the Revenue and perpetuating a faulty system." This cannot be in the interests of justice."