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 ...
The FSB's proposal to raise the VAT threshold to £100,000 is a step towards fairness for small businesses!
This includes the requirement to pay VAT once their turnover reaches £85,000. The FSB is now calling for the government to raise this threshold to £100,000, providing much-needed relief for small businesses and promoting economic growth.
"The current VAT threshold has remained at £85,000 since 2017!"
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.
"By introducing a buffer, the FSB believes that this could be avoided!"
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.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about vat thresholds and how they affect your small business, it may be a great idea to give me a call on 01604 217365 and let's see how I can help you.
Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.
You know what they say: if you want something done well ask a busy person!
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