Potential Changes In VAT Threshold

[DWS]

Yes, because they do not think about/understand the real implications of VAT.

Because they have no reason to!

 

[Paul Kelly ICHYB]

Because they have no reason to!

Really?

If you are going to have something that could fundamentally change your business, you shouldn't be aware of and thinking of it?

 

[DWS]

Really?

If you are going to have something that could fundamentally change your business, you shouldn't be aware of and thinking of it?

Yes really!
Why should a person who does gardening for example with a turnover of approximately £30k consider VAT?
They have no reason to as they are £60k below the threshold and would have no reason to consider it.

 

[DontAsk]

Because they have no reason to!

If they have to register for VAT due to changes in the budget then they have every reason to get a few clues.

Simply adding 20% is inflating their profit based on the difference between the 20% VAT they charge and the VAT they paid on supplies for that sale. They'll no doubt blame the new VAT rules.

There's nothing wrong with making more profit but blaming VAT changes would be ripping off your customers or, at least deceiving them.

Savvy customers, and competitors, will see through it.

 

[Newchodge]

Yes really!
Why should a person who does gardening for example with a turnover of approximately £30k consider VAT?
They have no reason to as they are £60k below the threshold and would have no reason to consider it.

That depends on their allowable expenses and their customer base, doesn't it?

 

[Paul Kelly ICHYB]

Re the profiteering angle, look at what has happened with private schools. From what I understand, almost all just slapped 20% on their fees and did not take into consideration what they could get back.

This is pure profiteering, which nobody moaned about or was not highlighted in the press (although I did comment on it a few times in different locations).

 

[DWS]

If they have to register for VAT due to changes in the budget then they have every reason to get a few clues.

Simply adding 20% is inflating their profit based on the difference between the 20% VAT they charge and the VAT they paid on supplies for that sale. They'll no doubt blame the new VAT rules.

There's nothing wrong with making more profit but blaming VAT changes would be ripping off your customers or, at least deceiving them.

Savvy customers, and competitors, will see through it.

They will get a few clues and more than likely have until April 26 to put measures in place, but as you state above (no mention of ‘may’ this time) adding 20% is simply inflating their profit which is not necessarily true, not all businesses have large amounts of input tax to claim and then they will also have the added compliance costs.
Savvy customers and competitors will see through what?
Window cleaner used to charge £30 to clean windows now has to charge £36 is the customer going to say hold on a minute you paid £6 in diesel getting here you should take £1 off my bill?

 

[DWS]

That depends on their allowable expenses and their customer base, doesn't it?

Apologies but as I said in an earlier post I was basing my answers on the end consumer

 

[DWS]

Re the profiteering angle, look at what has happened with private schools. From what I understand, almost all just slapped 20% on their fees and did not take into consideration what they could get back.

This is pure profiteering, which nobody moaned about or was not highlighted in the press (although I did comment on it a few times in different locations).

Because that is the what the legislation says they must do!
Whether they decide to reduce the fees before adding VAT is another matter but working that out will also come at a cost

 

[Paul Kelly ICHYB]

Because that is the what the legislation says they must do!

What?

The legislation says they must charge VAT on their selling price. It also says that they can claim VAT on costs.

Whether they decide to reduce the fees before adding VAT is another matter but working that out will also come at a cost

I agree it is another matter, but squealing like a pig that they will have to put prices up by 20% and lose business because if it is, at best, a bit of a porky!

 

[GLAbusiness]

A couple of points relating to end consumer.

1. The cost increase is only on purchases they make from non vat registered suppliers. I suspect that this is not a large proportion of their total expenditure
2. The higher the threshold the greater the pressure to raise money from other taxes - which also impacts the end consumer.

 

[DWS]

What?

Was I wrong then?
No

 

[Gecko001]

There are a lot of business who are really selling their time and there is not much they can claim back VAT on. When that business has to charge VAT, most of the 20% VAT will have to be passed onto the customer and if those customers are private individuals that VAT cannot be recouped. Thus many of these businesses will be under pressure to absorb the price increase to prevent customers not coming back to them.

Examples of businesses where this will happen if the threshold is reduced to 30k are:

Gardeners (as mentioned)
Handymen
Sole-practitioner architects who specialise in domestic housing design
Tutors
Music teachers
Personal coaches
Window cleaners

 

[Newchodge]

There are a lot of business who are really selling their time and there is not much they can claim back VAT on. When that business has to charge VAT, most of the 20% VAT will have to be passed onto the customer and if those customers are private individuals that VAT cannot be recouped. Thus many of these businesses will be under pressure to absorb the price increase to prevent customers not coming back to them.

Examples of businesses where this will happen if the threshold is reduced to 30k are:

Gardeners (as mentioned)
Handymen
Sole-practitioner architects who specialise in domestic housing design
Tutors
Music teachers
Personal coaches
Window cleaners

There are loads of little businesses like that, including
Domestic cleaners
Painters and Decorators
S/E delivery drivers
Mobile hairdressers
Mobile beauticians

However for every little business like that there are also larger similar businesses who currently have to register for VAT and who are undercut by those who do not have to do so. Is it not right to have a level playing field?

 

[DontAsk]

They will get a few clues and more than likely have until April 26 to put measures in place, but as you state above (no mention of ‘may’ this time) adding 20% is simply inflating their profit which is not necessarily true, not all businesses have large amounts of input tax to claim

Did you even bother to read the bit were I said "based on the difference between the 20% VAT they charge and the VAT they paid on supplies for that sale"?

Obviously it's conditional on circumstances. I shouldn't need to keep stressing that.

Most seem to understand that.

 

[Gecko001]

There are loads of little businesses like that, including
Domestic cleaners
Painters and Decorators
S/E delivery drivers
Mobile hairdressers
Mobile beauticians

However for every little business like that there are also larger similar businesses who currently have to register for VAT and who are undercut by those who do not have to do so. Is it not right to have a level playing field?

Yes, there is a very long list of types of small businesses which will be affected.

BTW, I am not arguing the rights and wrongs, just explaining the effects that it will have on many small businesses and the increases in prices for customers.

 

[DontAsk]

There are a lot of business who are really selling their time and there is not much they can claim back VAT on. When that business has to charge VAT, most of the 20% VAT will have to be passed onto the customer and if those customers are private individuals that VAT cannot be recouped. Thus many of these businesses will be under pressure to absorb the price increase to prevent customers not coming back to them.

All such businesses are in the same boat under the same pressure so prices will go up across the board.

 

[DWS]

Did you even bother to read the bit were I said "based on the difference between the 20% VAT they charge and the VAT they paid on supplies for that sale"?

Obviously it's conditional on circumstances. I shouldn't need to keep stressing that.

Most seem to understand that.

Obviously I read it otherwise I would not have included it in my reply to you

 

[MikeJ]

And we were told there would be no additional taxes on working people!!!!

The promise was not to raise the rate of VAT. Technically, they'd comply with this.

 

[DWS]

The promise was not to raise the rate of VAT. Technically, they'd comply with this.

Technically yes, but if the VAT threshold is abolished or reduced it will result in working people paying more.

 

[DontAsk]

Obviously I read it otherwise I would not have included it in my reply to you

So why keep arguing as though you think I am wrong.

 

[MikeJ]

Technically yes, but if the VAT threshold is abolished or reduced it will result in working people paying more.

I don't think many people doubt they have to raise tax somehow. They can't just take it from non-working people, so however they do it I'm afraid it's going to be working people that cough up.

 

[DWS]

So why keep arguing as though you think I am wrong.

I am not arguing, I am just pointing out that some businesses will automatically add 20% VAT to their prices, this does not mean that they are ripping people off and they may also have additional compliance costs to consider.

 

[DWS]

I don't think many people doubt they have to raise tax somehow. They can't just take it from non-working people, so however they do it I'm afraid it's going to be working people that cough up.

I am not a politician but there is a lot of money being spent on things that could be put to better use, also there are plenty of people out of work claiming benefits who should be working, there are issues that need addressing, you can’t keep taxing the working population to the extent that they are worse off than people who do not work and contribute nothing.

 

[DontAsk]

this does not mean that they are ripping people off a

It might do. That's what "may" and "conditional on circumstances" mean yet you have to keep coming back to it with a definitive "does not mean".

I'll leave it there. You can have the last word.

 

[Gecko001]

All such businesses are in the same boat under the same pressure so prices will go up across the board.

That will happen, but an almost 20% increase will see the market for these types of services negatively affected. People will elect to do their own gardening, window cleaning, hair dyeing, painting and decorating, domestic cleaning etc. Also, even if they still use these services, they might choose to use them less frequently, further depressing the market.

 

[DWS]

I'll leave it there. You can have the last word.

Thanks

 

[Lucan Unlordly]

If you have a business which cannot, in the medium term, charge VAT to customers then you don't really have a business, you have a hobby

What's medium term got to do with it? I have 99% of the users of a service only we can provide. Expansion is not an option. It's been priced appropriate to a market which has very few VAT registered users.

While I agree that there are some people who cannot handle running a VAT registered business, should they be running a business at all? The VAT part is tiny compared with all the other record keeping that is needed.

Is a part time business not a business just because it's under the threshold?

Anyway, as soon as the riding lessons provided by her staff instructors exceed the threshold, the prices she charges increase by 20%, and since the general public is her client, they cannot reclaim the VAT.

Our customers are in a very similar position, albeit as volunteers charging a nominal not for profit sum.

She's just one of the many who did not consider the implications of succeeding in business and one day hitting the VAT threshold, when setting prices. I struggle to have any sympathy

Your assuming growth beyond a certain level to be more important than the many other aspects of the decision to run one's own business. Success isn't reaching the VAT threshold when your objective is to have more time with your family.

 

[JEREMY HAWKE]

For @Newchodge
A new member has posted a new question on a new thread

Stay as sole trader for next year or go Ltd?

I'm a sole trader and I do maybe 50% of my work by myself and 50% with my brother. If he gets a big job, we'll do it together and I'll invoice him and vice versa. We do property maintenance, decorating, home improvements etc. I live in London and also work as a musician. He lives in Hampshire. I...

www.ukbusinessforums.co.uk

This is the type of person I am talking about when I say they dont like more business admin and reporting and there are thousands like it !

 

[Mark T Jones]

Out of interest, I had a quick peek at thresholds in Europe, most of which are significantly lower than ours - some have 2 levels, divided between goods & services, which kind of makes sense, but adds another layer of complication.

Most of the problems discussed relate to transition rather than ultimately being a major problem - with the possible exception of inflation. These things tend to find a level.

 

[DontAsk]

Success isn't reaching the VAT threshold when your objective is to have more time with your family.

Success is having a plan for when/if you do go over the threshold.

I know some who just shutdown for a few months.

 

[DWS]

Success is having a plan for when/if you do go over the threshold.

I know some who just shutdown for a few months.

They will be shutting down for quite a while then if the threshold is scrapped!

 

[Paulzx]

My company only directly pays VAT and Corp. tax. That's only two taxes. Both are simple enough to administer.

Why should business owners and directors "get some perks back"? Which perks are you thinking of?

What perks should the ordinary person be given?

You should be in business to make money, not take advantage of perks.

Perks used to be things like Directors being able to draw more money from dividends without paying tax. That has disappeared. Another perk would be something like, oh I don't know.. maybe being allowed to keep more of your profit that you worked hard to create, now there's a novel idea.

'You should be in business to make money, not take advantage of perks' - that's a particularly insightful comment that is. Have you got any idea how many businesses operate on very fine margins yet still employ a lot of people? If every business that wasn't making big profits closed, you would have a lot more unemployed people.

Nobody starts a business to lose money, but operating a business in 2025 is a lot more challenging than it has been in recent decades. There is no 'you should'.. the reality is, not every business can operate the same way due to many varying factors, and some of them need help.

If you want growth, and you want people employed, and you want business owners to put their houses on the line to do that, you need incentives for people to do it. Otherwise, you will end up with the majority of people working in government jobs, which we definitely do not want.

 

[Byzantium]

I can think of a reason where VAT registration will be a problem, using my daughter's business (a riding school) as an example. She's skirting on the edge of the threshold, albeit there are weird VAT rules around riding schools - any lessons she gives as the riding school owner are outside of scope of VAT but any provided by her staff are inside of scope of the VAT calculations .. so as a sole trader, she has to manage and differentiate these records.

Anyway, as soon as the riding lessons provided by her staff instructors exceed the threshold, the prices she charges increase by 20%, and since the general public is her client, they cannot reclaim the VAT.

Other businesses that deal directly with the public are going to be impacted the same way, but I do agree that any business that is generally B2B in theory could benefit from voluntarily registering for VAT.

Every business should account for VAT from day one and simply take the additional benefit of not paying VAT as a bonus when starting out. Thus, the imposition of having to pay VAT would not come as a shock.

 

[Byzantium]

The vat threshold is a barrier to growth. Many small businesses fear reaching the threshold ad do all they can to avoid income that would take them over. A zero or very low threshold is necessary, but will increase inflation. But the government is letting the BoE do all it can to increase inflation, so why should that matter?

No, it is not a barrier to growth, it merely facilitates ill thought out business ideas that are simply not viable.

 

[Lucan Unlordly]

No, it is not a barrier to growth, it merely facilitates ill thought out business ideas that are simply not viable.

So a new business idea is not viable if VAT isn't considered despite knowing that at the time of conception it's not applicable?

The viability of bricks and mortar or home working, a small van or large van, the availability of capital are all far more important than what 'may' happen down the line.

 

[Paul Kelly ICHYB]

With the budget a couple days away, it is interesting that these 3 drew in votes:

• Increase the threshold (to something like £100k or more)
• Reduce it to £30k (as rumoured)
• Scrap the threshold and all businesses should register for VAT

So, the consensus is pretty spread.

 

[GLAbusiness]

It is 2 to 1 in favour of lower threshold