Potential Changes In VAT Threshold

[Paul Kelly ICHYB]

Following on from a post about a petition against micro/small businesses filing P&L accounts (which many here seem to disagree with the petition), what are your views on the potential changes in the threshold where you need to register for VAT.

Rumours are abound that the threshold might be reduced to £30k, but what do you think about other options?

Vote and let us know your opinions.

 

[Mark T Jones]

Personally I think it should be reduced to hobby level - say £10K

That said, I suspect inflation may be a prime reason not to reduce it...

 

[Newchodge]

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?

 

[glengraving]

I voted in this poll to raise it.
I de-registered my business a few years ago and am trading below it, but should be trading above current level again in a year or so as I've been investing in the business bigly. I'm a one-man-band at the moment, more or less, and if I want to hire someone full time my turnover will naturally need to higher, and adding a VAT bill on top of the associated costs will be tricky to make work.

To compare to 20 years ago, the vat threshold has increased by 50%, while the minimum wage has increased by 135%, making it less possible to hire people while trading under the threshold.

If it had matched min. wage since (arbitrarily picked) 2005, the current threshold would be £141k, which I do like the sound of. That 50k breathing room could pay for a couple workers.

Anyway, that's fanciful, and if I must re-register then I'll make it work. The move to quarterly returns for most businesses does feel like a way to ease us micro-businesses into the workflow of VAT-returns so it's less of a shock later in the parliamentary term if/when they do drastically change the threshold.

 

[JEREMY HAWKE]

I can see this being a nightmare to manage
At the moment you have fairly well established businesses running the vat system in their business

Thousands of new small reluctant businesses being force to charge VAT will become very difficult for HMRC to control

 

[WaveJumper]

And I wonder how many small businesses would fall by the wayside or not even get off the ground, based on the amount of threads we have in a year when such enterprises reach the current threshold and find they cant compete with the competition.

Maybe it should be a level playing field a zero threshold, but as above would HMRC coupe ......... silly me what with everything digital they could still work at home, and would we see any change to current service levels

 

[Paulzx]

I read somewhere recently that we have over 40 different types of tax we pay in this Country. It's out of control. Whilst it is socially irresponsible to not pay tax, there comes a point, particularly in business, where you realise you are just a glorified tax collector for the government, with little incentive to keep going.

If they gave business owners and directors some perks back, or let you keep more of your retained profits, more people might be inclined to do it. I fear the VAT change might be slightly moot due the amount of businesses I see laying off or closing altogether. Expanding the VAT system will likely hurt that scenario even further.

 

[DontAsk]

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.

 

[Paul Kelly ICHYB]

Only a few votes, but interesting that 'make very one register' is the most popular!

 

[Paul Kelly ICHYB]

I read somewhere recently that we have over 40 different types of tax we pay in this Country.

If you include duty, employee tax and specialist stuff, you are probably right.

more people might be inclined to do it

Very few people make their decision of not starting a business based upon too much tax. Indeed, most probably do not think about tax when starting a business.

 

[JEREMY HAWKE]

Very few people make their decision of not starting a business based upon too much tax. Indeed, most probably do not think about tax when starting a business.

I agree nobody knows if they are even going to make it to that point

 

[GLAbusiness]

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. I can see an argument that a low threshold would allow businesses to start up, but the sooner they get to a level playing field the better. It's OK to support a start-up business to get going, but if they than cannot operate above the threshold it becomes an unfair threat to other businesses.

 

[JEREMY HAWKE]

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. I can see an argument that a low threshold would allow businesses to start up, but the sooner they get to a level playing field the better. It's OK to support a start-up business to get going, but if they than cannot operate above the threshold it becomes an unfair threat to other businesses.

I disagree

I know an HGV mechanic that is just below the current threshold
He probably has 10K a year of expenses at the most and earns a nice load of money for limited responsibility

When you are making double the average salary in the South West of England you are not playing with a hobby

 

[GLAbusiness]

I disagree

I know an HGV mechanic that is just below the current threshold
He probably has 10K a year of expenses at the most and earns a nice load of money for limited responsibility

When you are making double the average salary in the South West of England you are not playing with a hobby

That just illustrates my point. If he is making double the average salary it is not a hobby and should be subject to VAT

 

[bodgitt&scarperLTD]

I disagree

I know an HGV mechanic that is just below the current threshold
He probably has 10K a year of expenses at the most and earns a nice load of money for limited responsibility

When you are making double the average salary in the South West of England you are not playing with a hobby

Why is your HGV mechanic not registered? Surely all his clients will be?

 

[JEREMY HAWKE]

Why is your HGV mechanic not registered? Surely all his clients will be?

I don't know
Some people simply can't handle the responsibility another variable that will come to light if the VAT threshold is lowered to more coal face disciplines.

 

[Newchodge]

I don't know
Some people simply can't handle the responsibility another variable that will come to light if the VAT threshold is lowered to more coal face disciplines.

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.

 

[glengraving]

The VAT part is tiny compared with all the other record keeping that is needed.

Not true for a sole-trader to be fair, the difference for me was quarterly accounting instead of only annual (although that is set to change in the coming years). My business has been easier for me to deal with these few years without VAT.

 

[Newchodge]

Not true for a sole-trader to be fair, the difference for me was quarterly accounting instead of only annual (although that is set to change in the coming years). My business has been easier for me to deal with these few years without VAT.

Surely, you still need to record all sales and purchases, whether you report them weekly (for management information) monthly, quarterly or annually. The recording is the same. My quarterly VAT returns take much less than half an hour.

 

[GLAbusiness]

Using FreeAgent my VAT returns are a couple of mouse clicks

 

[DontAsk]

Using FreeAgent my VAT returns are a couple of mouse clicks

Same with VT Transaction+.

A few more clicks when I first registered to turn on VAT in OpenCart and make sure GeoZOnes were set correctly for VAT and Vat-free destinations.
A quick calculation to figure what existing stock I could include in my first return.

Can't think of much else.

I keep accounts up to data as I go along, a bit more than simple book-keeping and being VAT registered is no effort at all, compared to dealing with some customers.

 

[Ozzy]

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.

 

[numbersrule]

I think VAT is talked about so much that an irrational fear has become commonplace.

There is a tendency for myth and mystification in bookkeeping and accounting.

This means clarity is uncommon.

 

[DontAsk]

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 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

If the threshold were reduced to close to zero then everyone would be affected and need to raise prices so there's no disadvantage.

 

[Paul Kelly ICHYB]

If the threshold were reduced to close to zero then everyone would be affected and need to raise prices so there's no disadvantage.

Which results in an inflation spike!

But, as mentioned, it would possibly tune out the marginal businesses that just aren't realistic operations.

 

[DWS]

If the threshold were reduced to close to zero then everyone would be affected and need to raise prices so there's no disadvantage.

But what about the end consumer as in Joe Public?
They may well have been engaging businesses that are not VAT registered at present but if the threshold is lowered they would now have to fork out out an additional 20%, just for this to be handed to the Government?
And we were told there would be no additional taxes on working people!!!!

 

[Newchodge]

But what about the end consumer as in Joe Public?
They may well have been engaging businesses that are not VAT registered at present but if the threshold is lowered they would now have to fork out out an additional 20%, just for this to be handed to the Government?
And we were told there would be no additional taxes on working people!!!!

As I said in message 3

But the government is letting the BoE do all it can to increase inflation, so why should that matter?

 

[Paul Kelly ICHYB]

they would now have to fork out out an additional 20%,

Why?

Most people do not take into consideration the offsetting of VAT on business costs. Sure, this may mean that the increase could be 15%, but it could also mean 5%.

 

[Ozzy]

one day hitting the VAT threshold, when setting prices.

It’s not quite as straightforward as that. As I said in my post, anything my daughter does is outside of scope and for three years she never needed to worry about VAT. It only came to light later that anything her staff do is inside scope, but yes you could say her 5-10 year business plan research would have highlighted this. She didn’t, It didn’t.

 

[Ozzy]

Why

Because members of the public cannot reclaim VAT. Only VAT registered businesses can.

 

[DWS]

Why?

Most people do not take into consideration the offsetting of VAT on business costs. Sure, this may mean that the increase could be 15%, but it could also mean 5%.

Why?
Because a vast majority of small businesses that would have to go VAT registered would just raise their prices by 20%, maybe more when they consider the added compliance costs.

 

[Newchodge]

Why?
Because a vast majority of small businesses that would have to go VAT registered would just raise their prices by 20%, maybe more when they consider the added compliance costs.

Possibly, indeed probably if the threshold were lowered to include all businesses as there would be no competitive disadvantage.

 

[DontAsk]

Why?
Because a vast majority of small businesses that would have to go VAT registered would just raise their prices by 20%, maybe more when they consider the added compliance costs.

Then they may be ripping you off. I certainly did not increase prices by 20% when I registered. Once the VAT I pay to suppliers is accounted for the price rise to break even was a quite a bit less.

Not applicable to many small businesses but in my case customers outside the EU saw a price reduction.

 

[DWS]

Then they may be ripping you off. I certainly did not increase prices by 20% when I registered. Once the VAT I pay to suppliers is accounted for the price rise to break even was a quite a bit less.

Not applicable to many small businesses but in my case customers outside the EU saw a price reduction.

How by raising their prices are they ripping someone off?
The client still has the opportunity to not engage the business if they wish.
You are only looking at your business model and as I said there may also be the additional compliance costs to consider.

 

[GLAbusiness]

A rip off comes when someone raises prices by an unjustifiable amount.. Hopefully the market will catch them out when competitors take into account the effect that Paul identified upthread.

Most people do not take into consideration the offsetting of VAT on business costs. Sure, this may mean that the increase could be 15%, but it could also mean 5%.

 

[DontAsk]

How by raising their prices are they ripping someone off?

Read what you wrote " would just raise their prices by 20%,"

And then read what I wrote in that context.

Registering for VAT does not require a blanket price increase of 20% unless you have zero input VAT.

 

[DWS]

A rip off comes when someone raises prices by an unjustifiable amount.. Hopefully the market will catch them out when competitors take into account the effect that Paul identified upthread.

And what about the businesses who have none or relatively low input tax that can be offset, are they ‘ripping someone off’?
As I said it will be the consumer who suffers and have to suffer the additional costs

 

[DWS]

Read what you wrote " would just raise their prices by 20%,"

And then read what I wrote in that context.

Registering for VAT does not require a blanket price increase of 20% unless you have zero input VAT.

Read what you wrote " would just raise their prices by 20%,"

And then read what I wrote in that context.

Registering for VAT does not require a blanket price increase of 20% unless you have zero input VAT.

I have read what I wrote and what you wrote, so not sure what you mean?
My reply which I stand by is that just because a business raises their prices by 20% to account for VAT does not mean they are ripping someone off.

 

[DontAsk]

I have read what I wrote and what you wrote, so not sure what you mean?
My reply which I stand by is that just because a business raises their prices by 20% to account for VAT does not mean they are ripping someone off.

That’s why I said “may”. They have raised their prices more than necessary and may be ripping you off.

 

[Paul Kelly ICHYB]

Because members of the public cannot reclaim VAT. Only VAT registered businesses can.

No, that wasn't the reason for my no!!

Why?
Because a vast majority of small businesses that would have to go VAT registered would just raise their prices by 20%, maybe more when they consider the added compliance costs.

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