The Association of Independent Professionals and the Self-Employed (IPSE) has urged the government to increase the VAT registration threshold in order to ‘stimulate small business growth and encourage innovation’.
Under current rules, businesses must notify HMRC if their taxable turnover for the last 12 months exceeds £85,000, or if there are ‘reasonable grounds’ for believing that their turnover will exceed £85,000 in the next 30 days.
During the 2018 Spring Statement, Chancellor Philip Hammond announced a call for evidence in regard to the design of the VAT registration threshold. Responding to the call, the IPSE warned that lowering the registration threshold would ‘actively discourage’ self-employed individuals and small businesses from growing beyond it.
The business group has called on the government to raise the threshold in line with RPI.
Andy Chamberlain, Deputy Director of Policy at the IPSE, commented: ‘Lowering the VAT threshold would be disastrous for the UK economy, particularly during the uncertainty posed by Brexit.
‘The cashflow problems caused by such a move would mean people would face the stark choice of either raising their prices – causing them to lose customers – or absorbing the cost themselves, which would do significant damage to their businesses.’
Meanwhile, the Association of Taxation Technicians (ATT) also recently published its response to the call for evidence, and stated that reducing the VAT registration threshold would generate ‘unwelcome added costs and burdens’ for UK small businesses.