Entrepreneurs demand VAT threshold hike to help them through the recession

Discussion in 'Press Releases' started by DanMartin, Apr 16, 2009.

  1. DanMartin

    DanMartin Editor Free Member

    2,412 155
    Two of the UK's biggest online communities of entrepreneurs are supporting a campaign for the government to increase the VAT threshold to £100,000 as one way of helping small business owners cope with the economic downturn.

    BusinessZone.co.uk and UK Business Forums, home to over 50,000 registered members, are backing a petition set up by chartered accountant Elaine Clark calling on the government to raise the minimum turnover limit after which business owners must register for VAT from £67,000 to £100,000.

    The simple measure would bring benefits to many entrepreneurs struggling to deal with the impact of the recession.

    Dan Martin, editor of BusinessZone.co.uk, comments: "One way of the government demonstrating that it really understands the needs of small business owners during the current economic climate would be to raise the VAT threshold.

    "While very simple to implement, the measure would reduce the administrative burden on business owners and help them to remain competitive. The benefits of a non-VAT inclusive price could also be passed onto consumers.

    "With employers' groups warning that thousands of SMEs will go bust as a result of the crunch, it is vital that Alistair Darling's Budget is small business friendly. Adding a VAT threshold increase to the list of measures to be announced next Wednesday would go a long way to doing that."

    Elaine Clark, of Cheapaccounting.co.uk, adds: "I have a client who is approaching the VAT registration threshold. They cannot increase their prices to cover the VAT to be paid to HMRC as there is a large competitor in the vicinity and the price competition is tough so they will have to absorb the VAT into their profit.

    "It will probably mean the closure of their business and the loss of their livelihood. This is something which I think should be avoided.

    "By implementing the change to the VAT threshold, my client has a chance of keeping their business afloat during the recession and in my view this is something which should be fully supported by the government."

    Notes to editors

    About BusinessZone.co.uk and UK Business Forums

    BusinessZone.co.uk is an online community that delivers day-to-day practical advice and guidance to small business owners. BusinessZone.co.uk runs alongside UK Business Forums, the UK's most active online community forums for small businesses and start-ups. UKBF members use the website to discuss business issues, to share ideas, to find suppliers and, importantly, to network with each other. www.businesszone.co.uk www.ukbusinessforums.co.uk

    For more information, contact Dan Martin on 0117 915 8638 or [email protected]

    About Elaine Clark and Cheapaccounting.co.uk

    Using 20 years experience at some of the UK's leading businesses, chartered accountant Elaine Clark, who is also an internet specialist, has developed www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions.

    For more information contact Elaine Clark on 0844 884 2399 or [email protected]
     
    Posted: Apr 16, 2009 By: DanMartin Member since: May 14, 2007
    #1
  2. gibby

    gibby UKBF Ace Free Member

    1,246 120
    nice article & campaign

    would be far better just to ditch the VAT system as it takes up so much time and is far from simple.

    G
     
    Posted: Apr 17, 2009 By: gibby Member since: Sep 11, 2007
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  3. James Smith

    James Smith UKBF Newcomer Free Member

    28 1
    I don’t doubt I will get a lot of flack for this, but I utterly fail to see how this would really help, yes it would help anything other than a small minority of business that sell mainly to consumers and are at the cusp of what will undoubtedly be £69,000 or £70,000 come next week,. If such a change was successful all you are doing is moving the issue on again to businesses slightly higher up the food chain at around £100,000 turnover, which is equally as arbitrary.

    Taking Elaine's client, they will have just the same concerns in a year or twos time as they grow.

    I am going to make an assumption here – which may well be wrong- but it would appear that Elaines client is working on a “cheap is best” strategy and competing mainly on price. If so they are no doubt currently benefiting from not having the same cost base as their competitors.

    To not have spotted earlier on that being VAT registered will be a problem down the line if cost is the main competitive advantage smacks I am afraid of poor planning on behalf of the business owner. This is the sort of issue the business owner should be addressing right at the start when a plan is being put into place. Indeed its something I always discuss with etailers who often have this sort of strategy, they often do quite well to start but then hit a wall when the threshold it met at the natural advantage removed. By moving the ‘wall’ all you are doing is moving the problem a little further out of view, you are not tackling the fundamental business issue that if people are only coming to you because you are ‘cheap’ they disappear PDQ when you are not. You have to make customers come back for other reasons – such as quality.

    I should also point out I think UKBF (which I don’t post on much but do read and respect) risks being labelled alarmist when stating that this business will close if they register for VAT. How small a profit are they making? Again making assumptions, assuming the business is currently profitable, why on earth would they grow their turnover and register for VAT, and then close down? The sane business person would stay strategically under the threshold and maximize their margin on each sale. This is the exact strategy several of my ‘lifestyle business’ clients pursue. The ones wanting to make serious cash tend to go for rapid growth rather than sit in the deadzone at around £70-80k t/o where the profits are the same if not lower than at £67k.

    I appreciate I may have got it wrong above, but it seems a very odd claim to make.

    From my point of view what I ask from the chancellor one thing. Stability.

    With stability you can plan, when they keep tinkering with the tax system you get an arbitrary set of winners and losers each time. Uncertainty means risk. Risk means less investment and shortens your outlook. All of which reduces profits and taxation revenues in the medium to long term .

    I should point out as a tax advisor my business essentially benefits from messing about with the tax system, but that is no reason to support it!

    Regards,
     
    Posted: Apr 17, 2009 By: James Smith Member since: Dec 20, 2003
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  4. DuaneJackson

    DuaneJackson UKBF Legend Full Member

    9,523 1,118
    James, I do see your point. It wont have a huge effect, but it will help more people than the 17.5% to 15% change did.

    I'm backing the campaign and promoting the petition on twitter.
     
    Posted: Apr 17, 2009 By: DuaneJackson Member since: Jul 14, 2005
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  5. DanMartin

    DanMartin Editor Free Member

    2,412 155
    Anything that makes a difference is a good thing in my view. It's getting lots of interest on Twitter so between us, let's make it happen!
     
    Posted: Apr 17, 2009 By: DanMartin Member since: May 14, 2007
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  6. astutiumRob

    astutiumRob UKBF Ace Full Member - Verified Business

    1,314 241
    I fail to see how raising the VAT limit would make any difference, (apart from meaning the Gov't find another way to steal more money from business somewhere else in the budget)

    So a *few* people on the edge of 70k *might* save a bit of paperwork ?

    But everything they buy is likely to be subject to VAT, so they're disadvantaged in not being able to claim that back, and if they are struggling and paying out more than they're getting in at the moment, they'd be a net-receiver anyway

    So they whole idea comes over as a waste of time and resources to me - I say lower the threshold to NIL, so everyone's on an equal footing.
     
    Posted: Apr 17, 2009 By: astutiumRob Member since: May 5, 2004
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  7. The Panda

    The Panda UKBF Newcomer Free Member

    702 154
    Too many small business people are struggling against the economic climate. I am a fairly new, young company and not yet reached the threshold. It is competitive in my business but only because lots of one man bands start up and I know for a fact do not have insurance or declare any of the earnings.
    I run my business correctly but when I do reach the threshold what then? Do I start to put my prices up 15% making me more expensive than the cowboys not declaring the income?
    I would want to grow but the 15% Vat would stop me. The alternative would be to stay under the threshold which also means I could not grow.
    The only way I could grow is to not have the burden of VAT at such a low threshold.
    £100,000 and upwards would be a much more realistic figure.
     
    Posted: Apr 17, 2009 By: The Panda Member since: Apr 16, 2008
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  8. amandajanepl

    amandajanepl UKBF Newcomer Free Member

    6 0
    Welcome Baby Home agree with the threshold to be put up for VAT.:)
     
    Posted: Apr 17, 2009 By: amandajanepl Member since: May 17, 2008
    #8
  9. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,267 2,882
    Great comments

    The reason I set up the petition was to help small business through the recession like the reductionn in standard rate to 15%.

    It will help in the short term.

    For me - anythign which helps small businesses at the moment I would support. Especially if it means they come out of thre other side of ther recession and then can plan for a bright future!
     
    Posted: Apr 18, 2009 By: [email protected] Member since: Nov 4, 2005
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  10. Guest

    0 0
    well done elaine any thing that helps at the is good i am just about too go vat reg but would rather not .
     
    Posted: Apr 18, 2009 By: Member since: Jan 1, 1970
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  11. BlueprintAnimation

    BlueprintAnimation UKBF Newcomer Free Member

    72 12
    I've signed - I take James's points completely but a personal advantage in the short term is still an advantage!
     
    Posted: Apr 18, 2009 By: BlueprintAnimation Member since: Mar 18, 2009
    #11
  12. chalkie99

    chalkie99 UKBF Enthusiast Free Member

    843 255
    -

    Here's a radical alternative -

    Reduce the threshold to zero!

    Make everyone register and put them on a level playing field eliminating the non-declaring cowboys by forcing the declaration of a (checkable) registration number.
     
    Posted: Apr 18, 2009 By: chalkie99 Member since: Nov 14, 2008
    #12
  13. The Panda

    The Panda UKBF Newcomer Free Member

    702 154
    Ummm, That is radical. Not popular though.
    The government take too much tax any way. Tax on this, tax on that, vat here, vat there.
    Thats why we are in a mess here, because hard working people are not as well off as those that dont work cos of the tax burden working people have to carry.
     
    Posted: Apr 18, 2009 By: The Panda Member since: Apr 16, 2008
    #13
  14. Mattonella Tile Studio

    Mattonella Tile Studio UKBF Ace Free Member

    1,677 319
    How about some sort of sliding scale based upon turnover so instead of 66,999 - 0%, 67,000 - 15%, it could be maybe 5% when you cross the threshold, 10% at 100k, and the full 15% at some other figure, so you ease gently into having to charge more?
     
    Posted: Apr 18, 2009 By: Mattonella Tile Studio Member since: Jun 10, 2008
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  15. graemepirie

    graemepirie UKBF Newcomer Free Member

    294 47
    I've been through this in quite a bit of detail with both the FSB and the treasury & I'm afraid that I disagree with the raising of the limit.

    It's true that there are millions of businesses restricting their growth to avoid having to register & this does enormous damage to the economy. Sorting this issue would I believe have a dramatic effect on growth in GDP.

    The root cause is that VAT is a regresive tax, ie once registered, it applies to all turnover from zero & therefore significantly damages profits (where the business is not in a position to pass it on).

    Moving the threshold just moves the problem and makes it even more difficult to break through - ie a worse problem.

    The other consideration is that in many cases there are businesses that have taken the pain in order to grow and as a result have to suffer the VAT deduction from their sales (as in the example given in the justification). It is not fair for their unregistered competitors to suddenly be able to attack their customer base with lower prices.

    I concluded when going through this that there are only two possible answers:

    1. REDUCE the threshold to 10K together with a corresponding reduction in the main rate of VAT. This is fair to everyone, removes the barrier to growth and would therefore generate more growth & revenue for the treasury.

    2. Introduce a tapered flat rate scheme, to make the tax less regressive.

    VAT, done through the flat rate scheme really involves very little admin and if changes are made using this scheme then there is no risk of increasing VAT fraud. It's noteable that this problem does not exist in most of the rest of Europe because their thresholds are significantly lower.
     
    Posted: Apr 20, 2009 By: graemepirie Member since: Jun 19, 2008
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  16. graemepirie

    graemepirie UKBF Newcomer Free Member

    294 47
    You can't do that because of B2B companies. Where they can just add the VAT when registered (because it can be claimed back), it would allow them to keep tax collected. A very unfair advantage.
     
    Posted: Apr 20, 2009 By: graemepirie Member since: Jun 19, 2008
    #16
  17. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,267 2,882
    Thanks for all the support for the petition to date.

    The budget is just a couple of days away now - so let's keep applying the pressure on to give small businesses a boast during these very hard times.

    I take on board the comments made here. Great to have feedback and it would nice to see those who have make the comments lobby the government in some way, as I have, to make their views known.

    IMO a total review of all taxes would be a good thing. However that is probably the topic of another campaign for a different time. :p

    Let us not forget what the main point of this petition is - helping small businesses during this economic crisis.

    The banks got millions - so how about a small break for the SMEs?

    Thanks again for your support :p
     
    Posted: Apr 20, 2009 By: [email protected] Member since: Nov 4, 2005
    #17
  18. James Smith

    James Smith UKBF Newcomer Free Member

    28 1
    Interesting point about a lower VAT threshold. You couldn't really graduate the rates but you could offer beneficial flat rates to smaller businesses so the administration paid for itself.

    The point of it economically is to take away the distortions on the tax system. One thing I really don't like is distortion and making economic decisions based on a pure tax result.

    For example to my mind there is no logical reason why there is a tax difference between sole trades and limited companies.

    There is no reason for taxing capital gains much lower than investment incomes and in turn taxing earned incomes the most, especially via PAYE.

    There is no (non political) reason to tax people on low earnings and return that money as tax credits.

    My ideal tax system would be one rate, for all incomes over a set level. Limited deductions, 'scheme' anomalies and 'incentives'.

    The trouble is this is impossible with the politicians in charge of which ever flavour who like to tinker and do things for show. Wednesdays 'tax break' will be next years 'tax loophole'.

    The only way is to go down the bank of England route. Make HMRC quasi independent. Set it with the task of collecting a set percentage of tax with respect to GDP and leave it up to the politicians how to spend the money.


    Back to the real world, my normal budget update will be available here on Wednesday:



    For those of you who haven't read one of mine before, not all budget reports are dry! Think Private Eye does tax with a huge dollop of cynicism. Its out quick too!

    Regardsm
     
    Posted: Apr 20, 2009 By: James Smith Member since: Dec 20, 2003
    #18
  19. DuaneJackson

    DuaneJackson UKBF Legend Full Member

    9,523 1,118
    I really don't get all this talk about the "administration" hassle of being VAT registered.

    OK, I've only ever properly really used one accounts package in my entire life - but surely most of the other packages make it just as easy? Click, click, click. Job done.
     
    Posted: Apr 20, 2009 By: DuaneJackson Member since: Jul 14, 2005
    #19
  20. Mattonella Tile Studio

    Mattonella Tile Studio UKBF Ace Free Member

    1,677 319
    Not sure I understand. If everyone pays back the tax they've collected, and everyone claims back the tax they've been charged, where is the advantage?
     
    Posted: Apr 20, 2009 By: Mattonella Tile Studio Member since: Jun 10, 2008
    #20