Tax & admin · 22 November 2017

Autumn Budget 2017: No reduction to VAT threshold for small businesses 

Businesses with a taxable turnover under £85,000 will remain out of the VAT system for at least two years
Businesses with a taxable turnover under £85,000 will remain out of the VAT system for at least two years

The VAT threshold will be maintained at its current level of £85,000 for the next two years, the chancellor has announced, keeping thousands of small business out of the system until at least 2020.

Following a backlash from the small business community regarding a potential reduction of the VAT threshold, chancellor Philip Hammond eased fears in today’s Autumn Budget with a promise to freeze the entry rate at the existing level for two years from April 2018.

Read more Autumn Budget coverage, here

The debate regarding a potential reduction of the entry threshold emerged after an independent review proposed significant reforms to the current system. The idea was strongly criticised by the Federation of Small Businesses (FSB) as an unnecessary drain on small firms’ time and resources.

Commenting on the two-year pause on the VAT threshold level, Steve Seal, director of sales and distribution at Bluestone Mortgages, said the announcement would bring a “sigh of relief” to contractors, freelancers and entrepreneurs who benefit from being outside the VAT system.

The FSB has also acknowledged the move as “good news” for small business owners who won’t face the added administrative burden.

Welcoming the announcement, Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA) said her organisation was “extremely pleased that there will be no knee-jerk reaction to lower the VAT threshold”. “It is essential that we do not disrupt the economically important army of highly skilled contractors that provide necessary services to businesses, and we welcome the chancellors plan to consult on whether the VAT threshold could better incentivise growth.” However, Labour Party MP Gordon Marsden warned that the move only represented a temporary concession to small business fears, with the “fundamental review” due to arrive in 2020.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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