It has been talked about for years but The Treasury officially announced in the Spring Statement that it has launched a consultation on the VAT threshold.
The mere mention of VAT often sparks sensitivity from small businesses in particular who fear the lowering of the threshold from the current £85,000 down to a figure of around £29,000 which is more closely aligned with other EU members.
So why are they bothering? In December, Chancellor Philip Hammond asked the Office of Tax Simplification (OTS) to examine the impact of a higher or lower VAT threshold. The OTS found that a high threshold has a distortionary impact on business growth. This was mainly due to small businesses deliberately limiting their turnover to remain below the threshold.
A change to the threshold needn’t be bad news according to Laura Whyte, director at Whyfield: “The main message is don’t panic! For some, particularly business to business companies, you could be better off. For others, such as business to consumer companies, you could have options such as the flat rate. I’d advise modelling it for your business to understand exactly where you are at so that VAT doesn’t hinder your growth.”
Fellow director Roxane Neave explained: “We often find that newly registered VAT businesses don’t realise they can go back 4 years to claim VAT on goods and assets still held by the company and 6 months on services so it really is worthwhile assessing what the true impact will be.”
For more info on the consultation, feel free to visit https://www.gov.uk/government/consultations/vat-registration-threshold-call-for-evidence
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