Should we raise the UK VAT threshold from £85,000?

[@robinwheatley7789]

Completely agree with this Andy. My wife owns a High Street sewing business here in the North East and has thought exactly the same about the VAT threshold for some time. She has done ok in lockdown but has also closed temporarily to keep turnover down. Hope the Chancellor is listening. Good work, keep it up!

[@SmallBusinessToolbox]

Cheers Robin! The sort of business your wife owns is exactly what I had in mind when I was thinking about this. Good businesses who don't benefit from VAT registration who currently have the brakes on. Best of luck! 👍👊

[@johnmcquay82]

This year was meant to have been the start of my business; having invested time, effort and money into getting things together; it all came crashing down before things got off the ground. Having been a sound engineer for as long as I can remember as either a subbie or voluntarily; the encouragement of family and friends gave me the push to go it alone. I haven't given up hope as I do have all my equipment (owned out-right); but it's disheartening to have nearly 20 grands worth of kit sat doing nothing. I'm more fortunate than some as I do have a full time job; I can't begin to imagine what other people out there are going through.

[@stevegandalf4739]

Very interesting video. I had no idea that quite a few businesses turn down work to stay below the 85k threshold. Option 4 would not work, as it is well-known in the accounting world that bottom line profit is one of the easiest financial figures to doctor. So it seems that a VAT registration threshold of between somewhere between 250 to 500k might be the most practical option.

[@Brackers64]

Great Video Andy, I whole heartedly agree with this concept. I'm an expat living in Canada running a small handyman business. Our HST threshold is at $30,000. I purposely keep my business below that to avoid the extra 13% hit for my customers and the added hassle of the extra administration. I supplement my income by working part time at a local club as their maintenance / facilities manager but the hourly rate is pretty low. I am very confident that I could take on a helper if our threshold was increased to maybe $100,000 which is much lower than the UK. I hope governments are watching this, it would make small businesses much more viable. Keep up the great content. Bob... PS I won't add a link to my company as I am constantly turning down work for the reasons above!!

[@BlessedByAlMighty]

we need to increase it to 100k£*( profit) minimum In some European countries is 25k£ and corruption begins.

[@sodig876]

Excellent idea 💡 100% agree with options 1 personally, but it's a serious problem in the UK that needs to encourage small business to grow and not put the brakes on.

[@SmallBusinessToolbox]

Great stuff - cheers John! 👍

[@98tn]

The idea of increasing the vat threshold, effectively a tax cut is a great growth idea for businesses validated by nobel prize winning economist Milton Friedman unfortunately the public have lost hope in any growth spurring policies coming into play. With the risk of inflation, reaching 85k will come quicker in future years. The rate of vat at 20% is too high too. Great video.

[@ZippedAuto]

I have a plumbing company and going vat registered was a great move, and any business that requires to spend a lot of money on materials should go vat registered. Reason being weather the business buys the materials or the customer does, the customer is going to pay the vat on those materials anyway. And because the business will get 20% of the material cost back there's no need to put a mark up on the materials cost when the cost of the materials are high. This usually means on bigger jobs vat registered companies would be on par (price wise) than non vat registered companies

[@SmallBusinessToolbox]

Voluntary registration is defo worthwhile for a lot of businesses - depends on the business though. 👍

[@The12pottera]

Interesting idea - I own a very small Electronic design company that is very R&D based. We voluntarily registered for VAT as the 20% cost saving on R&D is much more helpful than being able to charge 20% less. Mainly because the items we sell are very high profit when looked at in isolation as all the costs are in the R&D - plus it helps when suppling to retailers. I realise you're coming from more of a trades/service company point of view but just my 2 cents. P.S. Love all your channels - Keep up the good work

[@SmallBusinessToolbox]

Cheers Alex! Voluntary registration is defo worthwhile for a lot of companies. 👍

[@ianxnyt]

I think what you may have overlooked is the small business reclaiming VAT paid on supplies/materials/services. The big boys upstream that supply the small businesses with their wood, bricks, premises, utilities, accountancy services etc etc will still all be VAT registered in all your scenarios, and a small business that isn't registered for VAT won't be able to make their prices as cheap as you say because of the VAT they've got to pay out. It might work if the plumber/carpenter can persuade their end customer (e.g. homeowner) to go buy all the materials themselves from screwfix but I'm not so sure that the end customers (homeowners) can be bothered with that, especially since screwfix will definitely charge them VAT on all the bits of pipe their plumber tells them to order. And it might work for certain businesses e.g. a one man band accountant who doesn't buy any supplies in other than the odd computer, but not many.

[@SmallBusinessToolbox]

Voluntary registration would still be a thing so that's fine, if it benefits the business then that's all good. For businesses where their major outgoings aren't subject to VAT (e.g. staffing costs etc) then it doesn't really help. 👍

[@chriscaton788]

I think they should change it too for trades men we have to buy all our material in the 85k and then have a wage left for us. We can average spend £2 to earn £1. I think we should be allowed to have 85k for just our labour so we can employee someone and work all year and enjoy our turnover going up instead of dreading it.

[@hughtattersall7583]

Hi Andy, £0 threshhold, gets rid of the problem.

[@SmallBusinessToolbox]

Trouble is that also benefits the huge conglomerates. The threshold is there to help small businesses get off the ground. 👍

[@robbristow]

Wow what a nightmare Andy. I didn't realise VAT was so complex, a turnover based system with a threshold seems an absurdity. In NZ we have a consumer tax (Goods and Services Tax GST) at 15%. However, all businesses with an income over $60,00 in a 12 month period are required to register and with few exceptions everything bought or paid for, either as an individual or a business, registered or not, has GST added. So if I buy a boiler to install I buy it at a price which is composed of a base price for the boiler plus a 15%GST component. When I use it on a job I charge the customer a base price and add 15% GST to that price. In the final invoice What I charge for labour to install the boiler will have 15% GST added as well. Every 6 months I make a GST return. I look at the income my business has received in the period (including GST) and calculate the GST component (GSTIN). I look at my expenses and calculate the GST component on that side of the ledger (GSTOUT). The return then is a calculation of GSTIN - GSTOUT. If that amount is positive it is paid to the IRD, if it is negative they refund the calculated amount. Half a dozen boxes on a single A4 sheet. My Returns take about 10 mins to complete ( would include starting the computer and opening the spread sheet)!! If the customer bought the boiler they would still pay a GST included amount, it might just be more expensive as a contractor might have bought it at a company discount and the contractor would pass that benefit on to the customer.(ha ha!). Faced with the format of VAT I would plump for option 4. I think you have the absurd situation in the UK of buying wet fish excludes VAT but put it through deep fryer and the base cost of that piece fish goes up by 20% immediately.

[@SmallBusinessToolbox]

Hey Rob! Might have the wrong end of the stick 'cause think it works the same way - it's just our threshold is £85k instead of $60k and our rate is 20% instead of 15%. So you can still off-set and claim back from VAT on purchases, so all good there. What I'm saying is potentially raise the threshold so smaller businesses don't even have to think about it, unless they want to voluntarily register of course. 👍😀

[@robbristow]

@@SmallBusinessToolbox So what is so difficult/unfairness about having VAT? Perhaps the real option would be to lower the threshold to make the playing field level? When GST was introduced in NZ registration was required at $30,000 turnover. When I was in business GST was the simplest of the unpaid jobs I did to provide income for the Government (10 mins every 6 months). Other taxes like Employee PAYE, fringe benefit tax on business assets that overlap between business and non business, employee superannuation etc. were far more involved. Having a higher turnover threshold only improves the income and competitiveness of those with low overheads. If your bike guy wanted to take 6 months off to stay below £85,000 then that seems a bit short sighted. He must have believed that the upturn was only temporary and he must also have low overheads that he could sustain the outgoings over the 6 months. If he was registered for VAT he could claim back the 20% he pays on overheads (assuming all his suppliers were VAT registered) In Simple terms, If his income/expenses were 14155.67/4166.67 per month for 6 months and 0/1500 per month for the other 6 months. Working for 6 months would provide an annual income of 51,000 (4250 per month annualised) If he worked the second 6 months with no change to his charge out rate and registered for VAT, 20% of income would go to VAT and he could claim back the 20% VAT on his expenses. His annual income would increase by 45,000 to 96,000. (8000 per month). Why go on such an expensive holiday? If the good times ended he just winds up the VAT registered company and starts again was a sole trader. Perhaps another option is to exclude VAT from the hourly labour rate? On the other hand you could have one company, used from January to June and another from July to December, perhaps? Great Debate!!

[@gavmcdonald7684]

Just adding this here for people, just in case they're not aware. You can apply for a VAT exception if you temporarily go over the threshold. For example if you're a builder and get that one big job that pushes you over the threshold; however, you normally earn under the threshold. www.gov.uk/vat-registration/when-to-register

[@gareth1971]

When Rishi Sunak goes back into the private sector, who do you think he will get a cushy job from? Andy's small business, or Amazon or Facebook?

[@SmallBusinessToolbox]

Don't do it Rishi! 😭😭👍

[@tonyharms7430]

Rishi is so rich the idea of him needing a job cushy or not is incredible.

[@gavinhorton6247]

Rishi hates small business. Just go back to the beginning of the lock down when he made a comment on self-employed. Think he said something about the taxation should change in this sector as he thinks its unfair

[@Parkhead_workshop]

my workplace was given lifelines by Rishi Sunaks grants, but going forward your idea could be great. I see between £150-200k as the sweet spot for VAT, enough to help most microbusinesses but without changing the system too drastically. Regardless of anything, taxes are going to go up, so something should be done to help small businesses for the next while.

[@SmallBusinessToolbox]

Yup - taxes are going up and they need to be careful not to cripple smaller businesses in the process. Or we'll end up with a high street filled with Amazon outlets. That would be horrific. 😭👍

[@rodp2310]

Hi Andy. £250k or £500k would be good I think - at that level, as you say, it’s likely that the business would need an admin/accounts person(s) anyway. It’s a complete pain for small businesses to have the VAT red tape looming at such a low figure that hasn’t moved for ages. Profit threshold is maybe too difficult to measure for a small business (the turnover threshold is hard enough to monitor for most). Whatever he does, I just hope Rishi doesn’t change the rate of VAT to some daft percentage - at least 20% is fairly easy maths. But I think with MTD looming for all, it’s maybe more likely that the threshold will become zero within the next 10 years and VAT (or maybe UST - universal sales tax - my prediction) will just be de facto for all businesses from day one. I think GOV consulted on raising the threshold a couple of years ago and there were, as always, cases put for both increasing and decreasing the threshold. Maybe a zero threshold would be simplest of all and MTD will be the way to do it. I’m not advocating that at all but I fear it’s likely within 10 years.

[@SmallBusinessToolbox]

I fear you might be right. MTD for self assessment will be a killer for many small businesses. I don't know of a single business who are that on-top of their taxes to file everything monthly or quarterly (income tax I'm talking here). I think it's coming though! (vid on that subject coming) 👍

[@TopC333]

Inflation is running higher all the time so £85k ceiling is being reached far sooner. I believe the whole tax system in the U.K. is medieval money, banking & trading has changed a lot with modern electronics however like the cheque the current tax system never seems to go away.

[@Stevie-L-n8g]

Yes, Yes, Yes. Yes to all. Threshold should be based on profit, but I don't think you'll be able to change their minds. It was bad enough when I legitimately had to deregister, and had to pay another five months extra. They totally overlooked their own rules.

[@Bexyboo88]

Firstly, I just want to say a big thankyou for your absolutely amazing videos, they really have been helpful. I have now registered myself as self employed (which I was a bit nervous about but followed your video!) I have my letters come through and need to submit a return within 3 months for 18-19 and another by the end of Jan for 19-20 - so that's the next bit I need to work out now. Gosh, I wouldn't be able to give any opinions on the VAT threshold, my Etsy shop is earning less than 2k (revenue) a year currently so I've got a way to go there haha!! I was wondering if you had heard about this though.. when I went on my Etsy dashboard today there was a notice saying to sign a petition. It reads: "The UK government is considering introducing an online sales tax that would hurt the e-commerce sector, in particular small and microbusinesses like Etsy sellers, who would bear the brunt of the tax. The proposed tax is intended to address concerns that the business rates system imposes an unreasonable burden on high street stores, as they face a tax on the rental value of non-domestic property, while online retailers can operate without the “high-value” properties. But while there may be legitimate concerns about the viability of the high street, a new tax on online sales is the wrong approach-especially in the midst of COVID-19. Now more than ever, small businesses need to be able to sell goods online. That’s why we’re urging the Government to avoid imposing a new online sales tax, and instead consider broader reforms to the business taxation system to ensure an even playing field for online and high street retailers."

[@SmallBusinessToolbox]

Thanks for the kinds words! Yes, an online sales tax would be a disaster for smaller online retailers. I'm all for kerbing the growth of the retail giants such as Amazon but they'd need to come up with something not to kill smaller businesses in the process. Amazon are experts at finding loopholes in such scenarios so it would probably have little impact on them but devastate smaller players. Bit more info here: www.ft.com/content/ec4194a2-5338-418f-ae26-2a9602463b36 👍

[@fredthomas7254]

I like option 1. I do not see how option 2 & 3 help B2B for small and medium size business. (Small business owner who wants to be VAT registered).

[@SmallBusinessToolbox]

Cool, I generally suggest if you're solely B2B then register for VAT regardless as it has no impact on your VAT registered customers and you can claim back VAT on purchases. Just the hassle of doing the returns. 👍

[@fredthomas7254]

@@SmallBusinessToolbox I don't know if you remember my comments on your VAT video... I hate 'claim back' its not the case, the correct term is 'offset'. You don't get anything back! Keep up the good work. Love the channel.

[@paulcheetham2893]

Exactly, or lower the threshold so the threshold stops becoming a barrier to growth

[@SmallBusinessToolbox]

If you lower or remove the threshold it can make it very difficult for smaller businesses to compete with huge companies who will happily run business elements at a loss to kill the rest of the market (think Amazon). 👍

[@paulcheetham2893]

@@SmallBusinessToolbox I’m thinking the hundreds of thousands of tradesmen businesses

[@Djsonley]

Small Business Toolbox As a reseller myself I fully agree lowering the threshold would destroy so many promising businesses. Not only that it would destroy the secondary market values for lots of products too (at least if people want actually liquidity for their used goods). It’s generally resellers buying these sorts of items so offers would be far lower to everyday people because you cannot claim VAT on PayPal G&S purchases. Everyone loses even the government.

[@ogrephill]

If the big companies paid the 20% tax that all small companies and self employed pay then you wouldn't need to do anything. It's got to be better if there are a lot more small businesses not slowing there businesses down just to avoid the vat threshold after all we still pay vat it's just at source. It's got to be better for the government if I buy 20 boilers instead of 10 and slow my trading down. I say increase vat threshold up to 200k and see how that goes.

[@SmallBusinessToolbox]

Great to know it would benefit your business! Best of luck in these strange times. 👍

[@animationcreations42]

Personally, I think the issue isn't with the number the threshold is set at, but fact a threshold based on turnover exists in the first place. I do quite like the idea of basing it on profit, but then like you say you have the issue of keeping profits low to both stay under the VAT and to keep taxes down. I wonder if a time based threshold would work instead, maybe say you have 5 years to register for VAT. I believe on average it takes 3 years to become profitable, so that gives them a bit of time to make a profit and gradually increase their prices over time so the 20% increase won't be a shock to customers. Maybe like with your profit based threshold idea you could keep a high turnover based threshold as a backup to stop the highly profitable businesses winding down and starting up again under a new name. As for how we're doing, the market research side of the business has done really well over the pandemic, I literally haven't stopped since March! Turns out everyone wants to know what their customers/clients think of the current situation!

[@SmallBusinessToolbox]

The time-based option is an interesting one! The only trouble is it doesn't do much to help your average coffee shop etc. trying to compete with the big chains. Although, as you say, hopefully after 5 years they'd be more established and better placed to put their prices up. Food for thought! 🤔👍

[@keefykeef]

Andy for prime minister!

[@SmallBusinessToolbox]

Ha ha not for all the money in the world Keith! 😉😂

[@danielobrien9255]

Great video as usual, I run a small Heating and Plumbing Business in Newcastle Upon Tyne www.nehps.co.uk, this year has definitely been an impact on business and I suspect next year will be worse again as people no longer have expendable cash for home improvements. I think from my point of view a raised threshold would be a brilliant idea for small businesses, keep up the good work!

[@wanem1622]

Interesting idea...

[@SmallBusinessToolbox]

👍👊

[@slightlytwistedagain]

You need to send letters to lobby groups and competing parties like the Heritage Party, the Reform Party, or whatever Farage sets up. I would like to put the other parties down, but as you know those parties are about taxing more to the point that they're a conglomerate themselves.

[@SmallBusinessToolbox]

Yup, last thing we need is more taxes as you say! 👍