Small businesses are the backbone of the UK economy, accounting for 99.9% of all private sector businesses and contributing over £2 trillion to the economy. However, these businesses often face significant financial burdens ...
And this is despite inflation and the increasing costs of running a business. This means that many small businesses are forced to start charging their customers an extra 20% once they reach the threshold, which can have a significant impact on their cash flow and ability to grow.
The FSB argues that increasing the threshold to £100,000 would give small businesses crucial breathing space and encourage them to expand their turnover without fear of sudden financial strain.
Moreover, the FSB is also proposing a smoothing mechanism to ease the transition for businesses that go just over the threshold. This would prevent a sudden jump in VAT payments and provide a more gradual adjustment period for small businesses. The Office for Budget Responsibility estimates that this 'bunching' just below the threshold costs the economy hundreds of millions of pounds in lost economic activity.
The current VAT system also poses a significant administrative burden on small businesses. The rules and regulations surrounding VAT can be complex and confusing, leading to additional costs for businesses that may not have the resources to hire accountants or tax advisors. By raising the threshold, the FSB argues that fewer small businesses would be required to register for VAT, reducing the administrative burden and freeing up valuable time and resources for business owners to focus on their operations.
The FSB's proposal to raise the VAT threshold is not only beneficial for small businesses, but also for the economy as a whole. By providing small businesses with more financial flexibility and reducing administrative burdens, the government can create a more supportive environment for these businesses to thrive. This, in turn, can lead to increased economic activity and job creation.
Jon Griffey from Hackett Griffey LLP says that, "In addition to raising the VAT threshold, the FSB is also calling for a broader review of the VAT system. This includes exploring options for a more gradual and fairer VAT registration process, as well as simplifying the rules and regulations surrounding VAT. A modern makeover of the VAT system is long overdue and that the current system is not fit for purpose in today's economic landscape".
The FSB's proposal to raise the VAT threshold to £100,000 is a step towards fairness for small businesses. It would provide much-needed relief for these businesses, promote economic growth, and reduce the administrative burden on small business owners.
As Jon says above, the government should seriously consider the FSB's recommendations and take action to support the backbone of the UK economy.
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