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Changes to the UK VAT threshold under discussion

By Dan Wilson November 6, 2017 - 11:54 pm

The current UK VAT threshold of £85k is considered to be a barrier for small business growth, according an advisor who will be making a report to the government about possible reforms.

Paul Morton is the tax director at the Office for Tax Simplification (OTS) and he believes that it is not uncommon for shops to shut for a month, for businesses like B&Bs to keep a room empty and for business owners to simply go on holidays to avoid taking their turnover above the the VAT threshold.
He said: “We hear that cruise ships are full of people staying below the VAT threshold.”

VAT is an obvious target for reform and simplification. It’s a complex tax on several levels. Firstly, there is the sometimes odd classification: remember Jaffa cakes. If they’re a biscuit they’re exempt but not so if a cake.

And there are also multiple schemes. There’s the generic 20% VAT rate, the 5% rate, zero rated items and also things which are exempt, such as books and newspapers.

There are several options available, and the OTS is preparing a report. One is to reduce the threshold. The UK level is high and a reduction would make it harder to shy away from and also raise more money.

The threshold could be increased. Although that would mean fewer revenues coming in. A registration threshold of say, £500k per annum, would cost the Exchequer as much as £6bn a year.

Another option is what they’re calling a “smoothing mechanism” which would mean smaller businesses would be allowed to retain some of the VAT they collected as an incentive but there are fears that this could be an added complication.

We’ll wait and see what the OTS come up with in their report. But anecdotally it’s not uncommon to hear from marketplace sellers who do hold back to avoid hitting the threshold.

What would you like to see if they change the UK VAT threshold?

  • Andy R
    3 weeks ago

    In real terms, the VAT threshold has not increased since I started in business in 1990. It was £52,000 back then, which by the Bank Of England’s inflation calculator should be £108,000 now. Which means that in real terms, smaller and smaller businesses have been sucked in.

    This means virtually every shop, even some larger market stall traders, have to register. It now easily drags in many larger Ebay and Amazon sellers.

    Because the tax is levied on taxable supplies, even elements such as postage charges count towards the total.

    As a minimum the threshold should be raised to its real inflation level, but something around £250,000 would remove smaller online concerns from the hassles of vat returns.

    It would also give a much needed boost to small business in the UK at a time when no coherent strategy is apparent for handling our exit from the EU.

    But since when did HMG ever do anything that would benefit small business?

    As the Paradise Papers further demonstrate, multinationals can get away with anything, but small businesses are easy targets.

    The unjustified VAT shakedown we had was a real eye opener – seven hours of intensive grilling over an alleged 40k underpayment which didn’t even exist.

    Perhaps we should all get registered on the Isle Of Man or Jersey.

  • Mark
    3 weeks ago

    I can’t see the government reducing the threshold. Last year, they got shouted down about the NI increase from the budget and soon did a u-turn. Increasing the VAT threshold would be far more ruinous to a small, unregistered business or sole trader (of which I am one).

    Reports are being made all the time (must cost a fortune) and I suspect this is just one report that the media have latched upon.

    The Tories are on very shaky ground at the minute and wouldn’t dare to push through anything as unpopular as this would be.

  • 3 weeks ago

    I would like to see VAT tiers – £0-100,000 = 0%; £100,001-150,000 = 10%, £150,001+ = 20%

    It’s the jump to VAT of 20% of all revenue that’s the killer and total disincentive to most small traders.

    Incentivise small business owners to grow, please.

    • phil
      2 weeks ago

      a tier system seems a great idea but then maybe business would hold back on sales to avoid the next tier.

  • mark
    3 weeks ago

    With an Aunt in Mauritius i am not bothered. The TV has shown me all i need to do is pay her over there and she can loan me back any money we need therefore avoiding all UK taxes just like the BBC employees and Mrs Browns Boys cast members.
    If only i knew it was that simple when we started out. So i have simplified the tax rules no end.

  • They should spend less time worrying about small businesses and more time making sure the global elite are paying their fare share. If companies like google, apple, facebook, ebay and amazon paid what they should HMRC could raise the threshold to encourage growth for small businesses.

  • 2 weeks ago

    What about that most traditional of places, Switzerland. It’s long been a hidey-hole for the rich and famous from all around the world to squirrel away money. Surely the Swiss have grown wealthy because of all the money and other assets which are stored in their vaults. Perhaps the UK is just learning some cute tricks from them???

    No mention of this in the Panorama programme – but then, maybe the hackers who have accessed all the financial documents and leaked them to the international press have an agenda designed to destabilise the West and make sure the monies are moved into their coffers.

    … I’m not sophisticated, but I can see there are more layers to the issues raised by the Panorama programme than just the most obvious ones. Widen the discussion, folks – it’s not only about the UK and its outliers, it’s also about the competition for all the monies which have come to our tax havens.

    More investigations needed, I believe.

  • ifellow
    2 weeks ago

    They should make it around 1 million, then no need to chase most of those Chinese sellers, its been over 10 years, its making every one look a bit silly.

    Especially those that pay tax, if your names not in the paradise papers, your a mug.

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