Experts call for VAT change

Experts call for VAT threshold change

The Government should consider raising the VAT threshold from £85,000 to £100,000 to remove the barrier to growth for businesses, according to a report by the Federation of Small Businesses. The current freeze on the threshold, which has been in place since 2017, means that more companies are being brought into the VAT system due to inflation. Tax Policy Associates estimates that around 26,000 businesses are stalling their growth to avoid crossing the threshold. Raising the threshold would increase productivity, capital, and employment in the economy. The report suggests allowing companies with sales between £100,000 and £120,000 to apply for a rebate on VAT passed to HMRC that reduces gradually as turnover grows. The present VAT freeze is expected to bring in an additional £1.4bn a year by 2027-28, but it also creates a distortion below the threshold. Tax Policy Associates founder Dan Neidle argues that a lower threshold should be considered to bring more traders into the system.