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VAT post-Brexit part III: Reviewing the registration threshold and the flat rate scheme

25th Aug 2016
VAT Consultant vatadvice.org
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In the final part of his trilogy of columns around the VAT implications of Brexit, Les Howard reviews the registration threshold and flat rate scheme, and urges HMRC to take a more joined-up approach to policy making.

Readers may be aware of my view that the VAT registration threshold should be much lower than it presently is. One reason is the ‘fiscal cliff’ effect of a small business exceeding the threshold.

For example, a jump in taxable turnover from £82,000 to £84,000 for a service-based business will see an instant loss of at least £10,000. A change in the threshold would also help to reduce the ‘our prices do not include VAT’ disclaimers so often seen in this country.

I can understand opposition to such a suggestion, so here are some possible alternatives:

  • a reduced VAT rate of 10% for sales by businesses whose total turnover is less than £100,000; or
  • a revision of the flat rate scheme to make it more attractive for small businesses.

The effect would be to taper the impact of VAT registration for smaller businesses, to allow them to adjust prices and procedures.

As one who contributes to online forums, the flat rate scheme continues to provide sleepless nights for many people. The legislation is especially complex, which seems inappropriate for a simplification scheme for small businesses! HMRC do need to look at the rules, and the way they are applied.

I would welcome a more joined-up approach to small businesses by HMRC. This can bring together registration, FRS, cash accounting and annual accounting rules. Direct tax rules should be streamlined with indirect tax. At the moment, the burden on SMEs is too great, and the complexity of tax rules is one element of that.

And, as I mentioned in a previous piece, HMRC will be well-advised to bring in external professionals to input into such simplification.

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