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FSB counts cost of lowering the VAT threshold

20 November 2017

FSB counts cost of lowering the VAT thresholdWith fears that the VAT threshold could be lowered in this week's budget, the Federation of Small Businesses has warned that such a move would "drain small firms of time and money".

VAT-registered small businesses currently spend an average of 44 hours - the equivalent of six working days - managing VAT administration every year, according to the latest research by the Federation of Small Businesses (FSB).

Over a quarter of firms (27%) surveyed said they find VAT difficult to understand, compared to just 5% who said it is easy to grasp. Common issues are exemptions (53%), establishing the rate at which payment is required (24%) and different thresholds (21%).

Mike Cherry, FSB national chairman, said: "VAT is the most time-consuming tax to deal with. Once again small firms and the self-employed fear the chancellor could single them out for a tax grab at the Budget, this time by forcing more of them into the VAT regime. Doing so would create a real drag on business output. At a time of spiralling costs and persistent uncertainty, a lowering of the VAT threshold is the last thing our entrepreneurs need."

Cherry added: "The VAT regime is awash with complexity and anomalies. When the burden of administration falls so heavily on business owners and the self-employed, it opens the door to lost hours and honest mistakes. Small firms are not like corporations - they don't have accounting expertise on tap.

The FSB is calling on the Government to introduce a "smoothing element" around the threshold as suggested by the Office of Tax Simplification (OTS) in its recent review of VAT.

"We have an issue with some firms approaching £85,000 of turnover and putting the brakes on," said Cherry. "The registration cliff-edge remains a concern for many firms, but making huge swathes of businesses and the self-employed join the hugely complex VAT regime is not the answer. The chancellor should be prioritising simplification, rather than expansion, of VAT and the tax system at large."

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