Hammond To Reduce VAT Threshold In Budget?
Discussion
So last month HMRC/Gov announced a scaling back of Making Tax Digital by only making it compulsory for VAT registered businesses, and now they're considering lowering the VAT threshold to bring pretty well everyone who's in business back into MTD scope??
I'm sure a lot of PAYE employed people are thinking 'doesn't affect me, it's tax avoidance anyway, blah blah'. Except it will affect them - when they next call out a plumber, electrician, etc. Pretty much every self employed tradesman is going to put up their prices by 20%. Even the one's that are already VAT registered will see it as an excuse to raise their prices a bit I expect.
And I seriously doubt it's going to bring in anywhere near as much VAT revenue as HMRC estimates. It's bound to lead to an increase in 'cash' jobs, will probably push a good chunk of SE people back into employment instead. And I expect there'll be quite a bit of VAT fraud amongst these small traders claiming the VAT back on personal purchases as well.
Over the last 20 years the previous Labour govt, and now this Tory one, seem to be hell bent on turning the screws on small businesses/sole traders. At the same time they're cutting huge 'deals' on corporation tax with the big multi nationals.
A more sensible way to tackle the 'issue' (as they see it), would be to lower the VAT Threshold to a nominal amount (say 5k), but give every registered business a 40k VAT allowance (so you'd have to charge VAT on those first 40k of sales, but you'd get a rebate to reduce or cancel it out). The other thing that should be implemented is a range of VAT rates for different goods. IT systems are more than capable of dealing with multiple VAT rates these days. So for example, you could have a 30% and/or 40% rates for high end luxury goods, or particularly unhealthy sugary foods, and reduced rates for low cost everyday household goods.
I'm sure a lot of PAYE employed people are thinking 'doesn't affect me, it's tax avoidance anyway, blah blah'. Except it will affect them - when they next call out a plumber, electrician, etc. Pretty much every self employed tradesman is going to put up their prices by 20%. Even the one's that are already VAT registered will see it as an excuse to raise their prices a bit I expect.
And I seriously doubt it's going to bring in anywhere near as much VAT revenue as HMRC estimates. It's bound to lead to an increase in 'cash' jobs, will probably push a good chunk of SE people back into employment instead. And I expect there'll be quite a bit of VAT fraud amongst these small traders claiming the VAT back on personal purchases as well.
Over the last 20 years the previous Labour govt, and now this Tory one, seem to be hell bent on turning the screws on small businesses/sole traders. At the same time they're cutting huge 'deals' on corporation tax with the big multi nationals.
A more sensible way to tackle the 'issue' (as they see it), would be to lower the VAT Threshold to a nominal amount (say 5k), but give every registered business a 40k VAT allowance (so you'd have to charge VAT on those first 40k of sales, but you'd get a rebate to reduce or cancel it out). The other thing that should be implemented is a range of VAT rates for different goods. IT systems are more than capable of dealing with multiple VAT rates these days. So for example, you could have a 30% and/or 40% rates for high end luxury goods, or particularly unhealthy sugary foods, and reduced rates for low cost everyday household goods.
mjb1 said:
Pretty much every self employed tradesman is going to put up their prices by 20%.
The only ones who will need to put up prices by 20% will be those with no costs, so no input VAT. As they will be able to claim the input VAT then all their VAT rated costs will reduce by 16.66%. So for a trader that works on a roughly 50% margin, prices will need to go up roughly 10% (back of fag pack maths accuracy).RM said:
The only ones who will need to put up prices by 20% will be those with no costs, so no input VAT. As they will be able to claim the input VAT then all their VAT rated costs will reduce by 16.66%. So for a trader that works on a roughly 50% margin, prices will need to go up roughly 10% (back of fag pack maths accuracy).
I can see your logic but I think it's flawed. i.e I use a tradesman to do some works on my house. Charges himself out at say £150 a day. That will now be £180. Uses no materials. No input VAT.
I don't think traders work on a 'margin'. They charge themselves out by the hour/day/week and materials are added to the cost. If they go to the local builders merchant and get £100 of materials that are liable for VAT then they just bill the £120.
mickmcpaddy said:
fishseller said:
mickmcpaddy said:
Well if you vat registered and you pay £10+vat for something you claim back the £2 and put £10 against your profits for income tax and national insurance.
However if you are not vat registered you claim £12 against income tax and NI.
Correct However if you are not vat registered you claim £12 against income tax and NI.
un-paid tax collector leeching your customers for the tax man. Value Added Tax
With better or worse cash flow depending how you look at it The rumour has emanated from suggestions made by the Office of Tax Simplification - an independent body tasked with highlighting areas that cause inconsistencies and complexities in UK taxation.
I actually don't think Hammond will go down this route (although you never know). I expect he will leave the threshold at £85,000 - which would be the first time in years that the threshold hasn't been increased.
I actually don't think Hammond will go down this route (although you never know). I expect he will leave the threshold at £85,000 - which would be the first time in years that the threshold hasn't been increased.
ralph0912 said:
These rumoured changes will kill off many small businesses like mine, I sell lower priced cheap cars, last year 74k turnover I earned £12000 profit, vat changes will put me out of work, pure and simple.
Why would it put you out of work?The reason why non-VAT registered traders don't want to have to register is that, in certain circumstances, it can make them uncompetitive (they think) with non VAT registered traders.
If MOST traders had to VAT register, that cliff of uncompetitiveness would not be so serious.
There is a sound argument for having a very low (or even non-existent) VAT registration threshold - as is the case in many countries that operate a VAT system...
ralph0912 said:
These rumoured changes will kill off many small businesses like mine, I sell lower priced cheap cars, last year 74k turnover I earned £12000 profit, vat changes will put me out of work, pure and simple.
In which case if you were forced to register then, back of fag packet again, assuming you had no other costs apart from buying cars, you would have to pay 16.67% of £12,000 in VAT, or £2,000. If you had other VATable costs then this would reduce. Look up the VAT margin scheme for sale of second hand goods.But as Eric said, if all traders were in the same boat then prices to would rise to compensate across the board.
The government is very concerned that fear of VAT registration is seriously curtailing businesses from wanting to grow. I have always thought that it was a very serious issue in the UK economy. Businesses are afraid to expand and grow because they are worried about VAT and other issues arising because of their growth. Here's what the HMRC report says about VAT -
Interestingly, the HMRC report zeroes in on how businesses restrict their turnover in several different ways (sometimes illegally) to avoid going above the VAT registration threshold.
The most common tactic reported is closing the business or stopping advertising (47% of those restricting turnover admitted this). Refusing or turning down work (21%), asking customers to purchase materials (16%), and reducing prices of products were also popular. Some respondents split their businesses by operating as a separate legal entity or artificially separated the business by product or service (both 10%).
Interestingly, the HMRC report zeroes in on how businesses restrict their turnover in several different ways (sometimes illegally) to avoid going above the VAT registration threshold.
The most common tactic reported is closing the business or stopping advertising (47% of those restricting turnover admitted this). Refusing or turning down work (21%), asking customers to purchase materials (16%), and reducing prices of products were also popular. Some respondents split their businesses by operating as a separate legal entity or artificially separated the business by product or service (both 10%).
"
VAT threshold put under review:
The point at which small businesses pay VAT will be kept at £85,000, the chancellor says.
There had been speculation Mr Hammond might lower the threshold to bring it in line with other European countries.
He says: "I will consult on whether its design could better incentivise growth and in the meantime we will maintain it at its current level of £85,000 for the next two years."
"
VAT threshold put under review:
The point at which small businesses pay VAT will be kept at £85,000, the chancellor says.
There had been speculation Mr Hammond might lower the threshold to bring it in line with other European countries.
He says: "I will consult on whether its design could better incentivise growth and in the meantime we will maintain it at its current level of £85,000 for the next two years."
"
RM said:
ralph0912 said:
These rumoured changes will kill off many small businesses like mine, I sell lower priced cheap cars, last year 74k turnover I earned £12000 profit, vat changes will put me out of work, pure and simple.
In which case if you were forced to register then, back of fag packet again, assuming you had no other costs apart from buying cars, you would have to pay 16.67% of £12,000 in VAT, or £2,000. If you had other VATable costs then this would reduce. Look up the VAT margin scheme for sale of second hand goods.But as Eric said, if all traders were in the same boat then prices to would rise to compensate across the board.
more people on the dole
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