Chancellor Philip Hammond announced in his Spring Statement that he will conduct an investigation into VAT for small businesses and is apparently considering changing the current VAT threshold of £85,000.
Mr Hammond proposed a phasing in of VAT obligations for firms when they reach the current threshold rather than the current “cliff edge”, which sees some firms put on the brakes on growth to avoid being affected by the tax.
The Federation of Small Businesses (FSB) welcomed the plan, saying that VAT is the most time-consuming tax for small businesses to handle. In a previous study, it was found that it can take more than a working week a year to comply with the tax, which the FSB maintains should be spent on running their firms and increasing productivity.
The current £85,000 VAT Registration threshold is one of the highest in the European Union and other developed countries.
However, there are rumours that the threshold could in fact be lowered to £75,000 but business lobby groups, such as the Association of Independent Professionals and the Self Employed said this leaves a “dark cloud” over the self-employed.
A spokesman for the group commented that if the Government were to lower the threshold, it would create a “nightmare scenario” for many thousands of the smallest businesses in the UK.