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

Tax cut promises may need to be scrapped as a result of the UK being in an ‘unfortunate economic and fiscal bind’, the Institute for Fiscal Studies (IFS) has warned.

The next government is likely to face some of the most difficult economic and fiscal choices the UK has faced outside of pandemics, conflicts and financial crises, according to an IFS report.

The IFS said that a combination of high debt interest payments and low expected growth is forecast to make it more difficult to reduce debt as a fraction of national income than in any parliament since at least the 1950s.

The think tank also warned that whilst tax rises and cuts for public services are built into current government plans, public services are ‘showing signs of strain‘ and are ‘performing less well than they were in 2010’.

IFS Director Paul Johnson said:

‘Now more than ever, as a country, we face some big decisions and trade-offs over what we want the state to do and how we’re going to pay for it. Those looking to form the next government should be honest about these trade-offs.

‘If they are promising tax cuts, let’s hear where the spending cuts will fall. If they are going to raise, or even protect, spending, they should tell us where taxes will rise. Or parties might think that further increases in government debt are justified: in which case they should make the argument for why debt should be rising.

‘If to govern is to choose, then to campaign should be to present clear choices and trade-offs to the electorate. If the parties don’t do that clearly and honestly over the next year, we at IFS will do what we can to plug that gap.’

Internet links: IFS website

Government borrowing fell to £7.8 billion in December 2023 giving Chancellor Jeremy Hunt more scope to make the tax cuts he has hinted at in the Spring Budget.

The Office for National Statistics (ONS) data revealed that government borrowing for last December was around half of that borrowed in December 2022.

It also showed that interest payable on government debt fell to £4 billion in December 2023, down by £14.1 billion when compared to December 2022.

During the World Economic Forum’s annual meeting in Davos, Switzerland, Mr Hunt hinted that he wants to cut taxes

The Chancellor said:

‘In terms of the direction of travel we look around the world and we note that the economies growing faster than us in North America and Asia tend to have lower taxes, and I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.

‘That’s the direction of travel we would like to go in but it is too early to say what we are going to do.’

The Chancellor will present the Spring Budget on Wednesday 6 March 2024.

Internet link: ONS website GOV.UK

With less than a month to go to the self assessment deadline 5.7 million taxpayers have been urged to file their 2022/23 tax returns by HMRC.

HMRC data shows almost 6.5 million customers have already beaten the self assessment clock by filing their tax return.

This includes 49,317 taxpayers who used the New Year holiday to get a head start on their tax obligations:

• 25,593 taxpayers filed their tax return on New Years Eve, with the most popular time being between 12:00 and 12:59, when 2,677 customers filed
• 127 taxpayers saw in the New Year by filing their tax return between 00:00 and 00:59 on 1 January
• 23,724 taxpayers filed on New Year’s Day, with the most filing between 15:00 and 15:59.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said:

‘The clock is ticking for those customers yet to file their tax return. Don’t put it off, kick start the new year by sorting your self assessment.’

Internet link: HMRC press release

Red tape, rising costs and increasing regulation are holding back exports, a survey of UK businesses carried out by the British Chambers of Commerce (BCC) has found.

Current customs checks and declarations present ‘barriers to exporting’, according to 49% of firms polled. An additional 40% of businesses said taxes and duties are other areas of concern.

Regulation, such as product certification, causes problems for 38% of small firms, the BCC found.

William Bain, Head of Trade Policy at the BCC, said:

‘Our findings highlight the key priorities for business that could make a difference when it comes to UK trade negotiations and other related policy developments.

‘What they want to see are faster customs processes, removal of non-tariff regulatory barriers, tariff reductions where these could make a difference, fewer hoops to jump through and greater certainty.

‘With the UK government involved in trade negotiations with so many countries right now, including India, South Korea, Canada and Mexico, these findings are a timely reminder of the important issues.’

Internet link: BCC website