Budget alert! Reduction in VAT registration threshold

  • by Carole Jordan
  • 13 Nov, 2017
Autumn budget 2017 reduction in VAT businessheads accountants and consultants brighton

There are proposals to reduce the VAT registration limit to capture more small businesses and increase tax revenue. 55% of small businesses are below the VAT threshold. Find out how you could be effected.

A report has recommended a reduction in the VAT registration threshold

In a report by The Office of Tax Simplification it is recommended as a way to both increase revenue and reduce VAT fraud. Other recommendations included are administrative and welcomed but no doubt less likely to be so enthusiastically taken up.

The IPSE ( Independent Professionals and Self Employed ) have called it a ‘cash grab’ and ‘a disaster for self-employed people’ and ‘part of a sustained attack’.

What will this mean for your business?

As we know from working with growing businesses, negotiating the VAT threshold does present a challenge, leading to price increases or margin reductions. Neither seem a good outcome for the public who will be paying higher prices, or the self -employed who will suffer a cut in their income.

VAT registration is also time consuming administratively and, part of the plan is to pull more small businesses into MTD (Making Tax Digital) which currently is proposed to only be imposed on businesses above the VAT threshold.

To manage VAT administration businesses will need to understand the vast array of rules around this most complex of taxes, they will need to consider the various options for different schemes available, some of which appear to be beneficial but often can lead to more complexity.


These are mainly one person businesses and the smallest businesses that we all benefit from such as; builders, gardeners, hairdressers, cleaners and taxi drivers. They often don't have the administrative skills to cope with such complexities and could easily find themselves with heavy penalties for errors or non-compliance. Small businesses are a soft target for HMRC and they don’t hold back when it comes to getting their pound of flesh if they can find an error.

How will this VAT threshold change be implemented?

If the treasury are determined to do something like this they will need to establish a brand new approach for the smallest businesses, perhaps a flat rate sales tax which is incremental towards the actual full registration threshold. But this, of course, is more complexity and not simplification at all.

The CIOT ( Chartered Institute of Tax ) said "Much will depend on how any change to the threshold is implemented. This may present an opportunity to refresh or extend the VAT Flat Rate Scheme, or consider a smoothing mechanism to mitigate the impact of exceeding the threshold".

The FSB ( Federation of Small Businesses ) said "any reduction of the VAT threshold against the current backdrop of unprecedented uncertainty and spiralling costs will have a hugely negative impact on growth in within the small business community"

We wholeheartedly agree with this and call on the government to show some intelligence and compassion when dealing with the small business community.

A treasury spokesperson said “We are grateful to the OTS for their recommendations and will respond in due course”.

I imagine Phillip Hammond is very excited about this since he can get £1bn-1.5bn a year extra revenue from half a million business by reducing the threshold from £85k to £43k and £2bn by reducing it to £25k.

This follows the imposition of additional tax payable by consultants working in the public sector, an increase in VAT on digital products,an increase in dividend tax and the threat of an increase in national insurance contributions for the self employed.

In these days of Brexit chaos following the recent and short recovery from a long recession it is disgraceful that the government should look to the self-employed and small business community to make up the difference caused by their inability to manage the economy effectively.  It increasingly seems like the government do not understand small business at all with announcements often accompanied by slurs either implying they have had special treatment through lower tax rates or are blatant tax avoiders.

For more budget predictions head over to our Budget page .

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