Specialist calls for higher VAT threshold to support struggling micro SMEs

26/06/2023
Iain Masterton (CT)

A LEADING VAT specialist has warned that rising costs resulting from high inflation are threatening the viability of many smaller businesses by pushing them over the current VAT threshold. Iain Masterton, the Head of VAT at accountants and advisers CT, has warned that the additional burden of VAT, combined with other increasing business costs, is putting the future of many micro-SMEs at risk. 

He has called on the UK Government to provide some ‘sensible’ relief by raising its current VAT threshold of £85K, which has been remained unchanged since April 2017, or consider changes to the VAT flat rate scheme for struggling businesses. 

Iain has cited a number of ‘small hospitality and travel businesses, tradespeople’ along with other micro-SMEs that are now threatened with closure after having to account for an additional 20% VAT on their income after being pushed over the 12 month rolling threshold.

Iain said: “In this highly volatile economic climate, many UK businesses are struggling due to huge cost rises brought on by high inflation. Smaller SMEs are now facing a further hit as many are being pushed beyond the £85K VAT threshold. 

“I have spoken with a number small hospitality and travel companies, tradespeople and even a small dance school operator which are concerned that the additional 20% VAT burden being added to their costs could force some of them out of business. This includes small holiday cottage operators, which are vital in supporting Scotland’s tourism sector. 

“These companies are faced with three options: they can cease trading for the remainder of the financial year before they reach the £85K VAT threshold; they can raise their prices to cover the extra costs of being VAT registered; or they can swallow these additional costs. Each of these options is detrimental to their financial viability especially at this time of other cost rises resulting from this period of high inflation.  

“The UK Government can lend its support in two simple ways. Firstly, it could raise the current annual VAT threshold of £85K, which has remained unchanged since 2017, in line with inflation to help businesses offset the increase in costs. A further option is to simplify the VAT flat rate scheme and make it more generous to those sectors that are most feeling the pinch from being pushed beyond the VAT threshold.

“Micro-SMEs make an important economic contribution, providing a living for hundreds of thousands of people throughout the UK and supporting many key UK sectors that rely on their goods and services. Reviewing the VAT registration threshold and other simplification options would not only be sensible and fair in light of rising inflation, but it would also ensure we prevent a raft of business failures and avoid the accompanying social impact of such an unfortunate scenario.”

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