A report by the Office of Tax Simplification (yes, one really does exist) in 2017 floated the idea of reducing the VAT registration threshold. Currently, the VAT registration threshold in the UK is £85,000. It has steadily risen over time, and is currently one of the highest in the EU. The average threshold for VAT registration in the EU and the OECD is approx.. £29,000 for both.
The OTS recognised that the threshold created a cliff edge. Many businesses restrict their output, and sometimes working hours, so that they don’t go over. The cliff edge effect is particularly relevant for businesses offering goods and services to private individuals. Typically, this would include businesses like beauticians, hairdressers, gardeners and hot food takeaways. These kinds of businesses would usually provide a living for the owner who would also work in the business.
However, the OTS have suggested reducing the registration threshold down to £25,000. This would obviously catch many more businesses and generate tax income for the Government. However, it would also have a profound effect on a lot of businesses who would be unable to avoid being registered. The ramifications would include a more level playing field (i.e. less registered vs. non registered), but with a lot more red tape.
There is currently a consultation out which examines the issue and suggests different proposals to try to soften the impact of registration. If you are affected by this proposal, you may wish to respond to the consultation. The consultation document can be found here.
The deadline for responses is 5 June 2018, which should be sent to VATthreshold@HMTreasury.gsi.gov.uk