From April, thousands of small businesses and self-employed people will not be required to charge VAT at 20 percent.
The threshold for VAT registration has been raised from £85,000 up to £90,000. This is the first increase in seven years.
Jeremy Hunt stated that the move will cost approximately £445million over five years and “will allow tens and thousands of businesses to stop paying VAT and encourage more to grow and invest”.
Tax Policy Associates is a think-tank that estimates 26,000 businesses stop growing to avoid going over the threshold, and being forced to collect the tax. According to a survey conducted by the British Chambers of Commerce, 43 percent of businesses with a revenue of less than £85,000 were worried about increasing their revenue above this threshold because of the need to pay VAT.
Business groups have largely welcomed the move, but they are calling for more reforms. Shevaun Haviland said, “Increasing the threshold for VAT to £90,000.00 will help SMEs grow and invest in our chamber network, but a fundamental review is needed.”
Michelle Ovens is the founder of Small Business Britain. She said: “The steep cliff edge created by the VAT threshold needs to be examined as it creates a barrier for growth for many companies. Raising the VAT threshold does not solve the problem structurally, but rather pushes it out.
Derin Kocer is a policy researcher for The Entrepreneurs Network. He said that the level “incentivizes small businesses to remain small”. This threshold burdens businesses that just barely breach it with significant marginal costs. We see businesses with a turnover that is just below the threshold because many companies stop working as soon as they reach it. This is a superficially attractive move, but it will not help Britain to grow in a radical way.
Dan Neidle is a tax lawyer, and founder of Tax Policy Associates. He has advocated for a much lower threshold that would force everyone, except the smallest traders, into the system. In 2017, the Office of Tax Simplification (an independent adviser to government) estimated that lowering the threshold to £25,000 would yield an additional £2 billion, but allow up to 1,5 million more businesses to collect the tax.
The extension of the loan guarantee scheme to small business by two more years was confirmed by the chancellor. The scheme supported billions of loans to thousands businesses, which were in most cases rejected by high street banks.
Hunt said that the Growth Guarantee Fund will continue to offer qualifying businesses a 70 percent state guarantee on up to £2,000,000 in Britain, and £1,000,000 in Northern Ireland. The Treasury estimated that it would cost £229 millions, which is offset by approximately £76 million of loan fees.
The guarantee is a vital tool for community lenders to attract funds from investors who were nervous about the expiration of the current scheme on June 30.