Following Spring statement 2018, the Treasury launched a consultation to assess how the VAT registration threshold can incentivise small businesses to grow after it was reported that many opt to stay below the current £85,000 turnover mark to avoid paying VAT.

The call for evidence closed earlier this month, and LITRG has said in its response that the government should exercise caution before introducing any further substantial changes to the business landscape, to avoid additional administrative burdens and complexity.

Anne Fairpo, LITRG chair, said: ‘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.’

Fairpo also pointed out 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. However she highlighted what LITRG sees as the dangers of reducing the threshold, suggesting that if this was 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,’ Fairpo said.

LITRG response VAT registration threshold is here.

Report by Pat Sweet