Throughout November and on into December 2017 Vat dominated many a conversation with fears up to the Autumn budget that the threshold was going to be reduced by the Chancellor and has turned to the implications of MTD starting in April 2019.
With Vat revenues of just about £120bn accounting for a whopping 22% of the entire UK tax take in 2016/17 it’s no surprise that the Chancellor no doubt looked very very closely at the possibility of raising even further revenue by a threshold reduction.
The fact that he pulled away from such an action even though egged on by the OTS was most probably a political rather than fiscal decision especially following the debacle regarding national insurance.
The OTS were stating that the threshold of £85,000 was making small businesses hold back from growing or expanding as they moved closer to the threshold as if this was something new.
As an accountant in practice for many years this is absolutely nothing new and what is making small businesses hold back is a mixture of the additional administrative burden and the loss of revenue. Of these two the administrative burden was and is seen as easily overcome but the potential loss of profits is another matter altogether.
Businesses that are non-VAT registered and deal with the public fully understand that they will have to raise they prices not by 20% but as many a client has said to me “a fifth”. Yes they will be able to recover Vat charged to them but the fear that income will fall the moment they add on that extra “fifth” for no extra benefit to the customer is a hard fact to overcome.
Any threshold will lead to a cliff edge situation but the rate is what is putting clients off because they all know that 20% is a fifth after all.
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