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PRO

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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Replies

    • PRO

      If you enjoyed that, hold on to your hat when you read the 85 page report released today ! 

      • PRO
        It’s a great read.... I really can’t see them not dropping the threshold now not with 1-2 billion extra tax!
  • PRO

    I've downloaded the pdf version, but page 85 is blank in mine. What does it say?

  • PRO

    Does anyone have a link to the report?

  • PRO

    Whenever Vat comes up on the forum, I must admit to some bemusement as I've been mistakenly concerned on a couple of occasions and in neither case, any problems arose. First when I first went vat registered, I expected to lose many customers, but didn't. In fact, I received lots of well done vibes about doing well and growing. Secondly, recently I've taken over a lot of customers from a non-vat person, and it has hardly been raised as an issue. People just accept it's part of life.

    When I'm asked for a cash price, I advise it's no different, as there is no up-side for me or them in doing it that way. For them because it means they won't get added to our CRM system, so will fall through a crack at some point and as a result get poor service.

    Also, it's not simply adding 20% to your price. Sure you can do this if you wish. Thats a business decision based on your market; but you can also factor in your reduced expenses due to Vat reclaim and pass savings onto your customer. It's not just materials, but machinery, vehicles, maintenance, fuel, admin etc, and adds up.

    Very interesting point in the report about the threshold stiffling growth - I think we see quite a bit of that on here. Substantially lowering it would remove that from any equation.

  • PRO

    https://www.gov.uk/government/publications/ots-report-on-routes-to-...

    OTS report on routes to simplification for VAT is published - GOV.UK
    The OTS has published its first report on VAT
  • PRO

    Release date 07/11/17  https://www.gov.uk/government/publications/ots-report-on-routes-to-...

    OTS report on routes to simplification for VAT is published - GOV.UK
    The OTS has published its first report on VAT
  • PRO
    We have always been spun the story that VAT is a EU tax and every unpopular move involving VAT has been blamed on the EU, except perhaps putting VAT on electricity, gas and heating oil bills, which the EU made clear was a UK Government decision and nothing to do with them.

    I guess it will become 100% UK tax for us without any EU input, so will the U.K. Government be good stewards and make a found decision to benefit the economy or just go for the biggest tax grab?

    If more businesses are forced to become VAT registered the tax rate could and presumably should be lowered.

    A rate cut to 15 % would be a real boost for the country in my opinion, but then I can remember the standard rate being 8% and consider 20% extortionate.

    Andy
  • PRO

    Personally, I feel that this leaves the door wide open to a tax grab from the chancellor. He missed out with NI and a reduction in the VAT threshold using other countries as a reason could well be enough for him. Anything more than a slender reduction would spell trouble in my eyes - more under-cutting from those competing on price, the 1-2 man businesses forced into becoming more expensive (actual % varying). 20% is a big increase for the domestic market.

    Staying under the threshold (say at 60k) would become even more appealing for a sole trader. If after already pushing your price point you can operate at a 40% profit margin, or at a 30% profit margin inc VAT, that's a whole lot of work you've got to get through before the same returns are seen - and this after paying to attract the custom.

    Landscaping and lawn care - no issue with it whatsoever. Plenty of VAT to claim back. It's standard practice to be VAT registered. 20% on mowing routes is where the issue sits maybe 75% of our work. It's a labour intensive service, the costs to be claimed back are limited to fuel and office costs. Even my servicing guy who's recently set up himself isn't VAT. It's a staggering net loss which is frustrating. I don't want to restrict supply and therefore potential growth but it really would be ~18% of 20% passed on. Looking at my current market it would make us simply uncompetitive. I'd love to be able to charge £25-30 for small mowing jobs but I just can't see it working. 

    Shifting the threshold will be a tax grab which shifts the bunch, and does nothing to solve the bunching issue highlighted. If it could be the same for everyone and extend down to the personal allowance maybe then great - we're on a level playing field. All well and good cheering about it when you're already VAT registered but I'm happy to admit I'm in the thick of this. I may have to push mowing prices further for 2018 - almost gain a safety net profit margin should VAT look to erode it. 

    In the long run, with the above considered and the lawn care jobs picked up this year I'm not sure I want much mowing anymore (makes me sad saying that!). Less stress and more profitable being a VAT registered lawn care provider as these recommendations could make my current business model move quickly in a different direction. When you've got a marketing method that's pulling in mowing customers its frustrating. 

    If we went VAT this winter it would lead to a 30% increase this year for many of our customers and therefore quite a clearout - a clearout of a lot of hard work to get this far. Need to be profitable before I can happily accept the tax burden.

    Rant over...

    • PRO

      same with sole gardening / maintance - i can see moving towards much more 'planting' based jobs in the future and in that situation the VAT registration makes a great deal of sense -- its just getting profitable and secure in the meantime on the 'bread and butter' jobs long enough to reach that situation.

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