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Small businesses rejoice as VAT threshold reduction appears to be shelved

The government is “not minded” to reduce Britain's VAT registration threshold, though Chancello..

By admin , in Money , at November 22, 2017

The government is "not minded" to reduce Britain's VAT registration threshold, though Chancellor Philip Hammond wants to see if the current structure "could better incentivise growth".

Britain has one of the highest VAT thresholds in the developed world – currently £85,000. It eclipses the likes of Germany, where businesses and sole traders must be VAT registered once making £15,600.

In his Autumn Budget speech, Hammond noted a recent report by the Office for Tax Simplification concluded Britain's threshold "distorts competition and disincentivises business growth".

He continued: "I also note the Federation of Small Businesses’ concerns about the cliff edge of the threshold.

But such a high threshold also has the benefit of keeping the majority of small businesses out of VAT altogether.

So I am not minded to reduce the threshold.

Instead, Hammond unveiled plans to "consult on whether its design could better incentivise growth".

"And in the meantime, we will maintain it at its current level of £85,000 for the next two years," he added.

Read more: Budget: Private jet and first class travellers face rise in air travel tax


PwC indirect tax partner Chris Orchard said while Britain's current threshold is comparatively high, "the threshold keeps some 3m small businesses out of VAT registration".

"Small, labour-intensive businesses, especially those run by sole traders, are likely be relieved that the threshold has not been significantly reduced," he said.

Federation of Small Businesses national chairman Mike Cherry welcomed Hammond's decision not to change the threshold.

He said: "Small firms spend more than a working week a year complying with VAT obligations on average. It’s time that should be spent growing their firms."

Read more: Philip Hammond mulls VAT overhaul as Budget day looms

Online marketplace

The Autumn Budget did include plans for a £1.2bn VAT clampdown in relation to online marketplaces.

Hammond wanted to ensure "sellers operating through them pay the right amount of VAT… Just as we would expect traditional retailers to do".

Deloitte indirect tax partner Daniel Lyons said: "Whilst there is clearly a significant public interest in preventing fraudulent online traders from evading VAT (and thereby undercutting compliant businesses) some of the practical difficulties for online marketplaces around whether they 'should have known' that VAT was being undercharged, should not be underestimated.”

Cherry added: “The promise to tackle VAT evasion by online overseas sellers is welcome. No business should be gaining an unfair advantage by evading tax."

Read more: The UK loses £1bn through VAT fraud and error on sites like Ebay and Amazon

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