Read?our reportof the VAT proposalsIn its review, the OTS dubbed VAT threshold a one of the highest levels in the world, claiming that by exempting many smaller companies, this expensive relief? was costing the UK economy 2bn a year. Cherry warned the chancellor, Philip Hammond, not to use his imminent Budget speech to ‘single out? small business. He said: At a time of spiralling costs and persistent uncertainty, a lowering of the VAT threshold is the last thing our entrepreneurs need. once again, small firms and the self-employed fear the chancellor could single them out for a tax grab at the Budget, this time by forcing more of them into the VAT regime. Doing so would create a real drag on business output. The FSB’s research found that more than a quarter of small UK company owners find VAT hard to understand. Just five per cent claim it is simple to grasp. Some 53 per cent of owners admitted that understanding the various exemptions was the most difficult aspect of getting to grips with VAT. meanwhile, nearly one in four claimed that understanding the rate at which payment is required was the hardest aspect of VAT, whilst 21 per cent said it was the different VAT thresholds. the VAT regime is awash with complexity and anomaly, Cherry went on to say. When the burden of administration falls so heavily on business owners and the self-employed, it opens the door to lost hours and honest mistakes. a sudden drop in the VAT threshold would punish the smallest businesses and shift, rather than solve, the bunching issue.[But], we have an issue with some firms approaching 85, 000 of turnover and putting the brakes on. the sensible route to solving that issue lies in embracing the OTS’s recommendation for a smoothing mechanism that respects the current threshold, not forcing more small firms into the system. the chancellor should be prioritising simplification, rather than expansion, of VAT and the tax system at large.
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