Despite the Spring Statement on 13 March 2018 being a low key affair, there were nevertheless a few business-related consultations published. Perhaps the most important is the government’s review of the VAT threshold, which was frozen in the autumn Budget at £85,000 until March 2020.

The government is gathering evidence on the impact of the VAT threshold on small businesses, following on from the Chancellor’s suggestion last year that it be substantially reduced from its current level; a figure of £25,000 was suggested at the time to much consternation from non-registered businesses.

The consultation is open until 5 June and can be accessed here:

The document includes a survey to make it easier to contribute and should not take many minutes to complete.

There is a need to fundamentally review how VAT works for businesses of all sizes after we leave the EU, so that it works for the UK’s benefit as a whole and does not discourage businesses from scaling up.

There are already problems for small firms after last year’s freezing of the VAT threshold, with some trying to keep their turnover below the £85,000 level, whilst at the same time battling rising business rates, the National Living Wage and pension auto-enrolment.

A sole trader who is able to trade below the threshold can charge 20% less to a consumer than a VAT-registered competitor, but that sole trader will also suffer VAT on their purchases and other costs.

Where costs are high, it can be worth registering in order to recoup the VAT, though the trader may have to weigh up the advantage of doing this with the extra time spent on VAT administration alongside payroll tasks and pension auto enrolment.

Many business owners fear reaching the “cliff edge” of VAT registration and will do anything they can to stay below it. So the threshold does act as an impediment to growth. And with Making Tax Digital for VAT (MTDfV) starting on 1 April 2019 for VAT-registered businesses, the fear factor increases.

But that is not the whole story, as VAT registration can also mean a trader has achieved a milestone in the growth of the business and has reached a base camp from which further growth is now possible.

Taking professional VAT advice at the right time and particularly ahead of MTDfV can ensure that registration is carried out smoothly and efficiently and avoids the pitfalls and penalties that could otherwise occur later on.

Business rates

The Chancellor also announced in the Spring Statement that the next revaluation of properties for business rates would be brought forward by one year, with triennial reviews thereafter. Whilst this may help some businesses, there was unfortunately still no hint from the Chancellor of a fundamental root-and-branch reform of the tax.

A summary of the key announcements in the Statement can be downloaded here.

This article first appeared in Boating Business magazine


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