20 November 2017

Chancellor Philip Hammond is being urged not to lower the VAT threshold in this week’s Budget.

If he does force more small firms and self-employed people into the VAT regime, then he will drain them of time and money, the Federation of Small Businesses (FSB) has claimed.

In response, it offers its own survey of some 1000 businesses as evidence that VAT is the most time-consuming tax to deal with.

Small firms and the self-employed spend an average of 44 hours each year on VAT administration – equivalent to six working days, it highlights.

The most time-consuming element is calculating the proportion of VAT owed – something cited by 43% of the companies polled as an issue of concern. Filling out VAT returns (17%) and researching guidance (10%) were also commonly highlighted as time-consuming elements of the process.

"The VAT regime is awash with complexity and anomalies," FSB National Chairman Mike Cherry complained.

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, he added.

There is a particular issue with some firms approaching the £85,000 turnover threshold and putting the brakes on, Mr Cherry explained. The sensible route to solving that issue lies in embracing the Office of Tax Simplification’s recommendation for a smoothing mechanism that respects the current threshold, not forcing more small firms into the system.

The registration cliff-edge remains a concern for many firms, but making huge swathes of businesses and the self-employed join the hugely complex VAT regime is not the answer, he insisted.

The Chancellor should, Mr Cherry concluded, be prioritising simplification, rather than expansion, of VAT and the tax system at large.