The government should raise the turnover threshold for VAT from £85,000 to
£100,000, according to the Federation of Small Businesses (FSB).
The business group said that this would give firms stepping into the VAT-paying
ring crucial breathing space. It would also be an incentive to grow their
turnover without fear of having to charge customers an extra 20% overnight, the
FSB added.
The FSB also suggested bringing in a smoothing mechanism to ease the transition
for small firms, owner-managed companies and some of the self-employed who go
just over the threshold.
At the moment, thousands of small firms keep their turnover just below the
£85,000 threshold, according to the Office for Budget Responsibility (OBR).
The OBR said that hundreds of millions of pounds of potential economic activity
could be lost due to this 'bunching' just below the threshold.
Tina McKenzie, FSB's Policy Chair, said:
'VAT compliance flattens small firms by stifling their growth and emptying
their coffers. It's crying out for a modern makeover to match today's
economic landscape.
'We can't let it squash the ambitions of small businesses, strivers, and
budding entrepreneurs.
'The flaws in our current system are glaringly obvious. We are at a breaking
point – a drastic overhaul of VAT is needed.
'Raising the threshold to reflect inflation, introducing a buffer to soften
the blow for those just over the limit and demystifying the rules to save
small business owners from a VAT-induced headache could unlock hundreds of
millions in extra economic activity.'
Internet link: FSB website