Lowering the VAT threshold 'would deter one-person traders'

An independent body the government set up is right to suggest increasing the VAT registration threshold -- but also wrong, because it suggested lowering it too, signals IPSE.

Decreasing the £85,0000 threshold "would actively discourage the self-employed", the Association of Independent Professionals and the Self-Employed (IPSE) warns.

The association was making the comments in reply to a consultation, but they come after the Office of Tax Simplification said that out of three lead options to reform VAT, reducing or increasing the threshold were the top two.

But lowering the point at which small companies in the UK must pay VAT would 'drag more contractors into red tape,' and therefore hand their rivals in the EU an economic advantage.

IPSE's Andy Chamberlain added:  "Lowering the VAT threshold would be disastrous for the UK economy, particularly during the uncertainty posed by Brexit."

By contrast, increasing the VAT registration threshold in line with RPI would follow a trend which saw the threshold pegged to the RPI from 1980 until it was frozen in 2017.

"It would provide businesses with that much-needed certainty as our imminent withdrawal from the EU approaches," Mr Chamberlain said.

"Increasing the VAT threshold would create a nurturing environment for our smallest business to thrive, expand and further increase the overwhelming value they provide."

Lowering the VAT threshold has been opposed by tax experts too, such as the Association of Taxation Technicians (ATT).

IPSE reflected: "The cash-flow problems caused by such a move would mean people would face the stark choice of either raising their prices – causing them to lose customers – or absorbing the cost themselves, which would do significant damage to their businesses."