LITRG voices concerns on any reduction of the VAT threshold

The LITRG believes that with so many fundamental changes set to take effect over the next few years for the UK’s smaller sized businesses, such as Brexit and HMRC’s Making Tax Digital, the government should hold off on introducing any further changes.

The LITRG strongly urges caution with regards to a reduction in the current VAT registration turnover threshold of £85,000, as this will simply add further complexity and burdens on businesses.

LITRG Chair Anne Fairpo, commented, “As VAT is based on a business’ turnover and not its profits, very many small businesses with low profits still find themselves having to deal with VAT on a day to day basis.

“We are hugely concerned that any lowering of the VAT threshold at this time could threaten seriously a small business’ ability to remain competitive in its marketplace if its trade is mainly with non-VAT registered customers.

“Lowering the registration threshold should only be considered if a smoothing mechanism can be incorporated into the VAT system to ease the tax cost and competition issues on crossing the threshold. Ideally, this should be in tandem with simpler VAT accounting and compliance requirements so that the additional administration a business must carry out on a day-to-day basis when it becomes VAT registered does not become too burdensome.”

She added, “We strongly believe that the prospect of a small business becoming a VAT registered trader is a daunting one for many and so may have the impact of stunting growth for some businesses. But if the threshold is set too low, this may entice some smaller businesses which might otherwise be compliant into the hidden economy. This is due to the overwhelming burden that they perceive VAT compliance to be and because they do not feel they can be competitive in their industry if they have to charge VAT.”

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