VAT threshold to be lowered ?

I've long believed that the VAT threshold should be lowered or abolished to provide every business a level playing field, to reduce cash-no-vat transactions, encourage growth and generate additional tax revenue. It's a subject much discussed on LJN in the past.

The Government's OTS has just published its first review of VAT thresholds, hence are actively considering options to simplify the already complex VAT area.

Various financial pundits are suggesting a reduction to £26K or even £20K could be on the cards, with some even hoping for a £0 threshold (unlikely, I'd suggest).

The FSB produced a White Paper some time ago and are expected to review its recommendations for the SME sector to the Government.

So, it's a "watch this space" situation for now............

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  • PRO
    "Business's that run with less than 5% profit margins? What then?"

    I have worked for a few of those, but they were VAT registered anyway.

    A director of one of the firms said to me "What you have to remember is that a small percentage of a lot is a lot and a small percentage of FA is FA" so to succeed a firm with a low profit margin requires a high turnover, therefore will almost certainly be VAT registered.
    • PRO

      Did you read the context?

  • PRO
    The VAT threshold is currently £83,000.

    If the turnover is predominantly labour a small business could pay the proprietor £80,000 a year without being VAT registered.

    However if a large part of the turnover is supplying materials or the resale of goods at a 5% markup the turnover of the business could be in excess of £1.6 million for the proprietor to get the £80,000 and will have to be VAT registered.

    The smaller the profit margins, the higher the likelihood of the business being VAT registered.

    Don't go confusing sole traders and partnerships where the bosses are basically earning a wage with companies that pay a dividend on profits to shareholders.
    • PRO

      Registration is mandatory if your VAT taxable turnover is more than £85,000 (the ‘threshold’) in a 12 month period. (source HMRC)

      Previous VAT thresholds

      From 1st Apr 2017 to today £85,000
      From 1st Apr 2016 to 31st Mar 2016 £83,000
      From 1st Apr 2015 to 31st Mar 2016 £82,000
      From 1st Apr 2014 to 31st Mar 2015 £81,000
      VAT registration: Calculate VAT taxable turnover - GOV.UK
      VAT - how to register, effective date of registration, registration thresholds, calculate taxable turnover, change your details, de-register (cancel)…
  • I suppose if you are a sole trader like me and you supply materials then you are already charging VAT and factoring this in with your Quotes so its just a case of charging it on your labour.  More of a pain than anything!  

    It will lead to some interesting discussions with existing regular clients!

    • PRO

      .... but you offset with input VAT ...

      If such changes take place it will affect all services supplied, not just you, so clients will be expecting this.

      Anyone trying to go under the radar will stick out like a sore thumb to HMRC especially when MTD comes in during 2020.

  • PRO
    I Googled the figure of £83,000, so don't assume it gives you the precise answer!

    If VAT registration is introduced across the board larger firms will find there is a lot more competition on the smaller commercial contracts, particularly those that involve a significant amount of materials being supplied.

    • I'm not so sure about commercial contracts because larger companies often offer better H&S and QA back up which can secure a contract award, often price is considered after this.

      • PRO

        i mentioned this to two clients today as general wordly chit chat 

        the reaction from both was ' no chance - ill pay you cash' 

        sure thats maybe jokey and time would change things -- but i seriously think if the VAT was lowered massively to the 20-40 k bracket then it would dramatically increase the cash in hand economy not help solve it. 

        It would make a sub industry ever popular and more profitable at a time where i hope theres less cash in hand competition than there used to be.  

        And anyone presently under VAT threshold that does a large annual increase in charges before this comes out could be in serious trouble adding a further 20 % on top afterwards 

        Cant see a 30 % plus increase in charges being easy to swallow. 

  • Yes please!! I have been registered from 'day one' and last year was my 40th anniversary of being in the VAT club! Not being registered can be a disincentive to expand and move forward.

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