Angela Riley, of Halifax-based Riley & Co, said many clients had called to ask about the mechanics of the drop in VAT rate from 17.5 per cent to 15 per cent, as announced in the Government's pre-budget report.

Many of the businesses were not trading 17 years ago when the rate last changed.

Those in retailing whose sale price includes VAT are not obliged to pass on the reduction to their customers.

"If, like Marks & Spencers, you are already offering a 20 per cent reduction, the fact that VAT has gone down by 2.5 per cent will not make a great deal of difference and you may well decide to keep the difference.

"However, when accounting for VAT all traders must operate the new rate from December 1, irrespective of when the customer pays the bill," said Mrs Riley.

Small businesses would need to calculate the VAT at the rate depending on the invoice date and not the date the cash was received, so their book-keeping would need to be up-to-date.

Mrs Riley said there was evidence banks were backing down over increasing overdraft interest rates so traders should discuss this with their bank managers.

"Some banks announced large increases in their overdraft interest rates, but have since backed down, and continued with the previously agreed interest rates.

"This is very welcome and appears to be a result of government pressure.

"The rate increases would normally have come into play because the credit crunch was causing the businesses to struggle, so the banks increase their charges to cover the increased risk.

"Traders should have a serious discussion with any bank managers proposing to increase their overdraft rates to see if this can be avoided. The Government is wanting the banks to pass on the cuts in base rate as a stimulus to business to help us trade out of our present difficulties."